3 Major Mortgage Mistakes That Homebuyers Like You Should Avoid

Are you a meticulous buyer? How long does it take you to decide to buy something? For sure, you’ll spend more time and energy to shop for homes and mortgages, right? This way you won’t experience any buyer’s remorse and avoid costly mortgage mistakes.

Yes, it’s common to hear about homebuyers’ mortgage mistakes but the outcome is far from nice: being stuck with a mortgage with unfavorable terms. More importantly, these mistakes are not inevitable and surely are avoidable as we’ll show you how.

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3 Homebuyers’ Major Mortgage Mistakes

Your biggest motivation to avoid the following mortgage mistakes: The opportunity of getting a better mortgage deal. Sounds like a deal?

Let’s count one to three mistakes you’d want to avoid at all cost when buying a home.

1. Not researching about mortgages.

Yes, knowledge is power and this rings louder in mortgages. Imagine undertaking a financial transaction, a debt spanning a decade and more only to be vaguely aware of what’s it about or how you came to be paying this much.

Start with the basics, such as:

  • What is a mortgage – It is money you borrowed to buy a home, secured by a promissory note, thus the name mortgage note. The home serves as collateral to the mortgage until such time as you have fully repaid the lender.
  • What is a mortgage rate – It is the charge, expressed as percentage, on the amount you borrowed.
  • How much is your mortgage rate – It’s a combination of numerous factors that represent your level of credit risk to the lender. Credit scores are a primary factor.
  • What are types of mortgage rate – Can also refer to mortgage types. Fixed-rate mortgages have rates that remain constant throughout the life of the loan versus adjustable-rate mortgages whose rates will adjust periodically after a fixed period.
  • How long do you repay a mortgage – Mortgages can take 15, 20 or 30 years to pay back in full. But some homeowners don’t wait that long to refinance – this means replacing the current loan with a new one with a lower rate/shorter term or get cash out of built equity.

A pro tip: Shop for mortgages first, homes can follow.

2. Not improving your credit score before applying for a loan.

Credit score/history is an important aspect of determining the creditworthiness of borrowers. The credit score is a result of all your credit transaction records compiled by the three major credit bureaus via a tri-merge credit report used by lenders.

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What this all means is that your credit score closely determines your mortgage rate. The better this score, the lower the rate.

Thus, your credit score should be scrubbed clean and ready before you ask for a loan by:

  • Paying your bills on time, every time. Payment history will reflect your diligence and willingness to pay back your mortgage.
  • Minimize the use of your credit cards. Keep well below 30% of your credit card limits so your utilization rate remains low and your debts, too.
  • Avoid taking on large debts before the mortgage application. This increases your debt-to-income ratio and means that more of your income has to go toward debts.

3. Not shopping and comparing lenders, mortgage offers, and rates.

With mortgages, comparison shopping is king. There are a handful of things to shop and compare:

  • Rates – Lenders don’t offer uniform rates or their advertised rates unless you qualify for one.
  • Loan products – They are many loan products in the market with varying guidelines. There are ones backed by the government, i.e. FHA, VA and USDA loans. Then, there are conforming loans deliverable to Fannie Mae and Freddie Mae. Mortgages that are neither conforming nor government are called conventional loans.
  • Lenders – They will make the loans and evaluate the borrowers. Their standards vary and their requirements dependent on your circumstances. More importantly, they impose varying fees and charges on their loans.

Settle for a loan only when you have gone around to know that it is the best offer you have.

It’s in your best interest to know what you owe and avoid these costly mortgage mistakes.

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