Taking out a mortgage to purchase a home is a big decision; it is likely you’ll be borrowing a significant amount of money that will take several decades to repay. Because this is a significant milestone, it’s crucial to avoid common mortgage mistakes that could cause you to pay too much or miss out on a great interest rate.
For a smooth home buying process, you should be smart about the home you purchase and the mortgage loan you choose. If you are in the market for a new home, try to avoid these top four mortgage mistakes.
Not Getting Pre-approved
The pre-approval process is one of the most important steps when purchasing a home and taking out a mortgage. The practice involves the mortgage lender doing a preliminary check of your credit report and other necessary financial details to determine if you can qualify for a mortgage and how much you are able to borrow.
If you skip the preapproval process, you could end up wasting your time shopping for a home that may be out of your budget. Getting pre-approved also demonstrates to sellers and real estate agents that you are serious about buying a home.
Spending Over Your Budget
After you get the pre-approval for your mortgage, you will know how much you can spend on your house.
In many cases, the amount approved for you may be considerably higher than the amount you are planning on borrowing. Take a look at your budget and decide how much you can comfortably afford to spend. While it’s different for everyone, most financial planners recommend that you spend no more than 30% of your monthly, pre-tax income on housing expenses. Make sure to stick to the limit you set, so you don’t end up house poor and forced to change other priorities that are important to you.
Not Shopping Around for the Lowest Rate
Before you lock in a rate with a mortgage lender, it’s important to shop around for the best rate and terms for your situation. Even a small difference in mortgage rates can make a big impact. For example, let’s imagine you took out a $300,000 mortgage at an interest rate of 4.0%. Over the life of a 30-year loan, your mortgage would cost $515,609. If you take the same mortgage at a rate of 4.25%, the total cost of your 30 year mortgage would amount to $544,016, meaning your loan would cost almost $30,000 more in the end.
Rates, terms, points and closing costs can vary widely between lenders. So it’s important to shop around and figure out what makes sense for your situation. Rate may be less important to some, but low closing costs are needed. Others may be willing to pay a for a few points to get the best rate for their forever home. Regardless, it’s a complex process, so our mortgage loan originators are here to understand your situation and make the best recommendation to fit your needs.
Ditching the Home Inspection
Some home buyers waive their right to have a thorough home inspection. This is not usually a wise move. Having a home inspection on the property you are purchasing is important as it can help you avoid any major issues that might be present in the home. If you want more than a general home inspection, consider getting a termite, electrical, and plumbing inspection. You don’t necessarily need every inspection but if there’s a reason for concern, specialized inspections may be worth your time.
While there’s a lot of homework that goes with buying a house, avoiding mortgage mistakes is worthwhile because you’ll avoid bigger headaches in the long run.
If you are still unsure or have any questions regarding what mistakes to avoid, we encourage you to reach out to our mortgage loan originators. They’ll be more than happy to answer any questions or concerns your have during your home buying process.
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