With the escalating prices of homes in the US, mortgage loans have become a popular financing option for those who dream of owning a home.
Considering that buying a home is perhaps the biggest purchase you’ll ever make, it’s no surprise that there are multiple ways you can find yourself making some costly mistakes in the mortgage process.
Getting a suitable mortgage loan is more than just having your offer accepted and signing on the dotted line. Here, we share some expert tips on the top pitfalls to avoid in the mortgage process.
Failing to Check Your Credit Score Before Starting the Process
The biggest mistake that mortgage loan borrowers make is approaching lenders without having an idea of where their credit lies. In fact, most first-time mortgage borrowers are shocked at things on their credit reports. Lenders will analyze your credit report in detail and use it to determine your creditworthiness, including the interest rate to be charged.
To avoid these problems, it’s advisable to check your credit score well before you start shopping for a mortgage. If you’re taking a USDA loan, you need to increase your score if it’s low or dispute any errors on the report. Keep your balances on credit cards, pay off your debts instead of moving them around, avoid opening new credit cards and fix your poor credit score.
Applying for New Credit Simultaneously
When it comes to applying for a mortgage, it’s good to know that your credit is under serious scrutiny. It’s not advisable to apply for a new credit card as it will definitely dip your credit score numbers temporary. The same goes for closing old credit accounts, which will lower your score. You’ll want to hold off opening up your local store card or applying for a car loan. And of course, keep making on-time payments and chipping away your debt.
Choosing a Lender Without Shopping Around
Finding a reliable mortgage lender is one of the most important steps in the mortgage loan process. Choosing a lender without shopping around is one of the greatest mistakes you can make. Even if loan terms and interest rates are similar across different lenders, the related fees and costs charged by each lender might not be the same.
You’ll want to ask around from friends and colleagues who have had a good experience with a lender. Evaluate at least two or three lenders so you can have an idea of what they offer. In addition to the loan terms and the interest rate charged, you should also get a breakdown of all costs for comparison. Make sure you also have the right mortgage application documents.
Skipping the Pre-Approval Process
Pre-approval is the process of going through a mortgage application with a lender. This involves filling out paperwork and verifying your income to determine what type of mortgage loan you can qualify for. Getting pre-approved for a loan is the best way to show a potential lender that you’re serious and makes the mortgage process a lot easier.
To get pre-approved, just let your lender know and make sure you meet all the requirements needed. Once you have an offer accepted, you’ll simply have to provide the lender with your details of the offer and address to move forward with the mortgage process. While at it, follow this simple pre-approval checklist to get you a home loan, according to Realtor.
Signing Documents You Don’t Understand
People fail to ask enough questions. Most would-be homeowners just walk into home buying and think it’s as simple as shopping around in a furniture store. Mortgages are more than just paying monthly payments. It’s more about how much you’ll pay in interest rates and the total amount you’ll pay over the life of the loan.
Make sure you fully understand what type of loan you’re getting, what you’ll be paying each month, how much interest you’ll be paying and whether you’ll have a fixed or variable interest rate. Know how much money you’ll have to bring to the table at closing and understand the numbers before you close the deal to ensure affordability.