Common Mistakes People Make When Applying For A Mortgage
Buying a house is a new and emotional experience, so it’s common to have a few hiccups along the way. Since a home is the single most valuable purchase for some people, the entire process can also be tricky to navigate if you’ve never done it before. Falling into a home loan may seem all too easy, but the lender relationship is never the kind you should just jump into. It will remain for many years, and it’s the most significant financial investment you’ll likely ever make. It pays to take it slow and make sure you find the best mortgage situation possible.
Additionally, it is vital to find a mortgage broker you trust to lead you down the twists and turns of the exciting journey to homeownership. It is also essential to know some of the common mistakes homebuyers make. So to help you avoid committing basic errors and ensure you have a smooth experience with minimum stress when buying a home, Straight Forward Mortgages - Stephen Guertin has put together a list of the most common mistakes people make when applying for a mortgage.
1. Waiting too long to address credit problems
If you plan to get a home soon, don’t wait until you’re ready to make an offer to learn that there are problems with your credit. Borrowers with higher credit scores manage to get better interest rates, which affect their monthly payments and how much house they can afford. Based on the complexity of your investments, it may take months or longer to improve bad credit and see significant bumps in your credit score, so it’s beneficial to get the complete picture and look for errors on your report or debts that have been missed. These issues can reduce your mortgage pre-approval chances, so the sooner you know about them, the better. Some practical ways to boost your credit are to pay off balances to under thirty percent of your maximum credit lines, avoid large credit purchases, open new loans or accounts, and pay your dues on time.
2. Not knowing the difference between fixed vs. variable
Customers prefer to usually take a five fixed-term rather than a five-year variable term as they can sleep peacefully at night knowing their mortgage rate will not change. We feel variable-rate mortgages can be a homeowner’s dream since this type of mortgage enables you to purchase a larger house than you usually qualify for and have lower, more affordable installments. And in cases where the consumer moves to another property with a fixed-rate mortgage, they can port mortgage but are restricted by the original terms, and sometimes they might have to break the mortgage to re-qualify. It can also involve a hefty mortgage penalty. Whereas if you take a variable rate product, your penalty would be only three months interest, and you could then re-qualify for something more flexible to meet your future needs.
3. Unsure about salary vs. hourly employed
Discussing the different types of income and how they affect your qualifications for a mortgage is essential. For those paid a straight salary, qualifying for a loan is pretty straightforward; underwriting would simply verify the salary amount and verify that employment is current. When it comes to hourly employed consumers, they usually have to back up their documents with two years of Notice of Assessments to confirm an income approach. If you’re considering buying or refinancing a home and you fit into one of these employee categories, it would be a good idea to have an initial loan consultation. When you speak with a mortgage professional, ensure that you account for all your various types of income. They will lead you and understand what kinds of income they can use to qualify for a mortgage.
4. Failing to get pre-approved
One of the common mistakes people make is not getting pre-approved for a mortgage before home buying or, worse, putting an offer on a home. Now and then, clients call in and say that they want to put an offer on a home but are not approved. As a result, they end up not qualifying due to income or bad credit scores. Also, sellers won’t take you seriously without a pre-approval letter in a competitive market, and you could lose out on your perfect home. This document includes the loan amount you qualify for, your interest rate and loan program, and your assessed down payment amount. The pre-approval letter also has an expiration date, usually within ninety days. So, when you find your dream house, please don’t waste time getting pre-approved by an authorized mortgage agent.
5. No down payment
One trigger of the subprime mess was that many companies allowed borrowers no-down-payment loans. Here’s why that became a dilemma. The purpose of a down payment is twofold. Borrowers who make substantial down payments are much more likely to try everything possible to make their mortgage repayments, as they do not want to lose their investment. On the other hand, many people who put limited to nothing down on their houses and find themselves upside down on their debt end up just walking away because they owe more funds than the home is worth. The more a borrower owes, the more prone to walk away, putting the mortgage in foreclosure. The intelligent thing is to consider putting at least 3% for a conventional mortgage or 3.5% for a Federal Housing Administration (FHA) loan.
To avoid these and other mistakes made while applying for a mortgage, reach out to me at Straight Forward Mortgages - Stephen Guertin. I will help you get the most from your mortgage now and in the future. As a professional Mortgage Consultant, I can offer the best rates to flexible options. I'll work with you to find solutions that suit your requirements.