Not Getting Pre-Approved
Another step people sometimes skip when applying for a mortgage is not getting pre-approved first. While it may be tempting just to go ahead and start looking at properties, it’s important to get an idea of how much you can afford before you start house hunting. A pre-approval letter from a lender will give you a clear idea of how much money you can borrow and what interest rate you can expect to pay. It also shows sellers that you’re serious about buying a property and makes securing a mortgage much smoother. So, if you’re considering applying for a home loan, get pre-approved first.
Not Having Money To Put Down
One of the biggest mistakes people make when taking out a mortgage is not having money for a down payment. While getting a mortgage with no money down is possible, this is generally not a good idea. Not only will you have to pay private mortgage insurance (PMI), but you will also end up paying more interest over the life of the loan. If you ever need to sell or refinance, you may find yourself in a difficult situation. In addition, having a smaller down payment makes it easier to become “underwater” on your mortgage-that is, owing more than your home is worth. For these reasons, saving up for a down payment is usually best before taking out a mortgage.
Forgetting About The Mortgage Loan Fees
Mortgage loan fees can sneak up on homebuyers. Some fees are due upfront, while others are added to the loan balance and paid over time. Still, other fees may not be due until the loan is paid off. It’s easy to forget about mortgage loan fees when you’re focused on coming up with a down payment and securing a low-interest rate. But neglecting to factor in all the costs associated with a mortgage can leave you with an unwelcome surprise later. The lender typically charges mortgage loan origination fees for processing the loan application and approving the loan.
These fees can range from 0.5% to 1% of the loan amount and are usually paid at closing. Discount points are another type of fee that the lender may charge. Discount points are essentially prepaid interest, and each point typically costs 1% of the loan amount. Borrowers who pay discount points upfront can lower their interest rate and save money over the life of their loan. Appraisal and title insurance fees are other common expenses associated with taking out a mortgage. The lender typically requires an appraisal to ensure that the property is worth at least as much as the loan amount. Title insurance protects the lender (and sometimes the borrower) against title defects or claims against the property.
Avoid Making These Mortgage Mistakes!
Everyone makes mistakes, but some errors are more costly than others. When taking out a mortgage, several mistakes can end up costing you thousands of dollars. So be sure to educate yourself about the different steps you need to take when applying for a loan, and don’t fall victim to these common mistakes. If you believe you are ready to start the home buying process, consult with a mortgage specialist today.
