Mortgage Mistakes can happen to anyone, and they're actually easy to make. Mortgages are increasingly difficult to obtain and ensuring that we are getting the most value for our existing mortgages is very important in these economic times; with our household budgets stretched more than never before, increasing numbers of people are finding themselves struggling to reach the payments, and that is when many mortgage mistakes occur. Finance is a tricky subject for many of us but very often there are some simple pieces of advice that can make money management a great deal easier. Read on for my list of 10 top mortgage mistakes to avoid.
1. Not Checking Your Credit
You should always make sure that you know what your current credit rating is before you get into a mortgage. If you have a high credit score then the interest rates that you are likely to be offered will be substantially higher than if your credit rating was lower. Checking your credit rating every few months is always good practice, as then you are aware and can alter your finances to bring the level down. This is one of the trickier top mortgage mistakes to change, but with some perseverance you will find that your interest rates can fall significantly.
2. Applying for Other Credit
Mortgage providers will want evidence that you can pay off your debt, so applying for new credit before obtaining a mortgage can be detrimental to your finances, with interest rates soaring. You will be labelled as a much bigger risk, which will also be reflected in your credit rating.
3. No Long-term Savings
One of the top mortgage mistakes that people make is that they do not have sufficient “seasoned” or long-term assets or finances. Without these finances, mortgage lenders will be reluctant to lend you a mortgage – if they do, the interest rates are likely to be eye-wateringly high. Do not think that you can transfer funds a few days before you apply to secure a mortgage – this will be picked up quickly, and you are likely to be refused any mortgage with that lender.
4. Being a Job-hopper
If you were lending hundreds of thousands of dollars to someone, would you lend to someone that is unable to keep a steady job? No. Banks will not either! You have to ensure that you can keep steady employment with a steady income. If you are finding a new job every two months you may find your application denied very quickly.
5. Understanding How It Works
One of the top mortgage mistakes made by first time buyers is failing to make a sufficient budget when calculating what mortgage payment you can afford. The payment includes more than just the cost of borrowing: A mortgage payment includes the principal, its interest, taxes and insurance – known as PITI. A prospective lender determines whether you can afford a repayment by using a calculation called a debt to income ratio. This is the proposed PITI divided by your gross monthly income. When setting your budget you should do your own determination suing the same method.
6. Not Shopping around
Always make sure that you compare different banks and mortgage lenders before signing any contracts. Just because you have an offer of approval from one bank does not mean that you are tied down to that particular lender – shop around and find the deal that will suit you best. One thing that you should always bear in mind is the additional closing costs that many providers will give you. Shop around just as you would for any other purchase to avoid making one of the top mortgage mistakes.
7. Not Receiving Pre-approval
One of the easiest ways to avoid the top mortgage mistakes is to get pre-approval. If you already have a mortgage lender lined up before you go looking for your new home you know exactly what you can afford and there’s little risk of losing out because you can’t find a lender.
8. Too Good to Be True?
As with anything, if your mortgage terms seem too good to be true then they probably are. If one lender is offering you an interest rate a fraction that the others are, then look at the fine print for the full terms and conditions. You may find that you are worse off with the seemingly good deal. One mistake that is often made is getting into interest-only payment plans or even negatively amortizing plans, where you are only paying off the interest or even paying off less than the interest so that your debt is growing every month.
9. Not Locking in Your Rate
It doesn’t matter how low your mortgage interest rate is if that rate isn’t locked in. Rates can change very rapidly, with some banks altering their rate several times a day – make sure that your rate is “locked in” before securing any deal.
10. Not Checking the Small Print
You can avoid some of the top mortgage mistakes simply by reading your mortgage documents thoroughly. It is vital you understand what you are agreeing to - a home is not a short term commitment. Make sure you ask questions about anything you don’t understand, even asking an independent advisor to overlook the terms and conditions if you want additional caution.
I do hope that you have found my list of 10 top mortgage mistakes to avoid useful, and can use what you have read to alter your financial situation if necessary. Please do leave a comment if you have found this blog useful, or indeed if you have any tips on avoiding common mortgage mistakes you would like to share with others. Everyone can benefit from learning about the biggest mortgage mistakes, so what helpful hints do you have?
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