The good part of buying a house is the excitement of finally having a place that is yours forever but the nerve-wracking part of the same experience is getting the mortgage for it. Not everyone has the luxury to buy properties with outright cash. With the rising prices of homes, finding the perfect deal which can be financially feasible is a challenge. If the prices in your area have fallen or you feel that you have a deal on a mortgage, you will be tempted to take the first offer that comes your way.
Before you start looking at the houses and making your offers, there are many financial and other details you need to consider. This involves everything from how you intend to pay the mortgage installments for the next thirty years to your debt-to-income ratio currently. When all the details prepared are in order, you can then go to a lender to prove your creditworthiness and get a house loan for yourself. Many a time, first-time buyers skip these steps and then are disheartened when their mortgage is rejected or even worse are unable to financially support the payments every month and end up defaulting. When you default payments on a mortgaged property, you are at the risk of losing it to the lender who can then sell it to recoup his losses.
Mortgages will probably be the biggest debt you will carry for years. That’s why it is important to avoid any mistakes during the process that could end up with you paying more than you should. Below mentioned are some common mortgage mistakes you can avoid to make the process smoother and without any unpleasant surprises.
Apart from paying your monthly installments on the mortgage, there are many other housing-related costs that you will incur. If you commit the majority of your income to mortgage payment then you will at the end of the month be left with very little or at times with nothing. Try to figure out how much costs you can afford and take other factors like savings, daily expenses, emergency funds, unexpected expenses like car repair, and so on into consideration. Try to spend less than 25 percent of your net income on housing. Along with the mortgage monthly repayments, you will also be putting away money for insurance fees, taxes, maintenance costs, etc. Be prepared with all the expenses associated with when you become a homeowner so the transition process is easier.
The only downside of marketing on the consumers’ behalf is the way the service or product is presented. The offers are always made to sound irresistible with a time limit on them so you jump on the first one you see. While you may look around many shops to get the best deal on your grocery and cars, many people fail to look for lenders who offer the best mortgage rate. This is the wrong way to go about it. You should get in touch with multiple lenders and get quotes from them. There are creative mortgage solutions that can help you save money.
There is one point though that you should keep in mind. Every time a lender gives you a quote, he will be using your credit score as a reference. When you do it from multiple places it will look like you are trying to get a loan from several places at the same time. This will bring down your credit score. Keep 7 days low interest wherein you can get all the quotes you need and don’t stretch it too far apart.
Another big mistake that you can make while taking a mortgage is to blindly sign on the dotted line without reading and understanding the fine print on it. While you may be thinking that the interest rate is low, at the same time you could be signing up for very high fees charged by the lender. Read through the Annual percentage rates from the lender to understand properly what the real costs are and which one is most feasible. While some loans may appear cheaper with low-interest rates, you will eventually end up paying more when it comes to closing the loan. When going through a document, take advice from a known lawyer or real estate agent to review the terms and conditions with you. Do not sign anything even if you feel a clause is not understood by you during the actual time you sit down to do it. It is better to walk away and come back with full information than make a potentially huge financial blunder.
Generally, the downpayment is between 5 to 20 percent of the total cost of the house. When you have this cash ready, you can qualify for the loan application process. However, when you pay less than 20 percent than you will be paying significantly high insurance premiums and interest rates. These two costs in themselves can add up to a good amount of expenses that you will incur monthly. It can easily then take up to 7 years or more to just build enough equity or lower the pending balance. Try to collect as much downpayment as you can. The higher the downpayment the more you can qualify for superior benefits like nominal monthly payments, low-interest rates, ease of payment, etc. Also the financial burden, in the long run, will be shortened.
The above steps will help you find a mortgage plan that fits your lifestyle and doesn’t cause you too much stress. As for finding the right house, take your time and look for as many as you can before finalizing one. After all, that is where you will live with your family and make a home for generations to come.