For many of us, buying a home isn’t as easy as we thought it might be. Subject to endless paperwork, checks and procedures, it can soon become overwhelming. Taking on too much at once can often lead to mistakes, and when it comes to the largest transaction you’re ever likely to make, mistakes can be devastating.
With the all-important mortgage, far too many homebuyers rush into getting the first product they find, without knowing the full details. Going in blind like this can lead to trouble, and may eventually cost you your home.
But, help is at hand. By arming yourself with knowledge, you can navigate the murky waters of mortgages with confidence, ensuring that buying your new home doesn’t become a nightmare situation. Read on and discover five mortgage mistakes that you need to avoid!
Chancing Your Credit Score
Your credit score is very important when it comes to applying for a mortgage, and lenders will be sure to scrutinize your credit history. As such, it’s worth keeping it in good shape by checking it months before you begin house hunting.
Often, your credit report can contain errors, which can drastically lower your score. Thankfully, it’s easy to remove these in advance. With a view of your report, you can see where you can improve, bearing in mind that a score of around 680 out of 900 is the minimum many lenders will accept. If you need to raise your score, you should be able to do so effectively over the course of a few months.
Forgetting to Get Pre-Approved
A pre-approved mortgage arms you with a solid figure, allowing you to budget accurately and search for houses that you can afford. This prevents wasted time and heartache, as you will only view those houses that you can get financing on. You will be given a maximum figure, but it’s always best to budget a little lower, giving you breathing space on your monthly repayments.
Another advantage of getting pre-approved for a mortgage is that you can make a more attractive offer to a seller. Since you’re pre-approved, the seller knows that you can afford their home, which can be the edge you need to triumph over other offers.
Failing to Save Enough for a Down Payment
Taking out a mortgage is the only way many of us can afford to buy a home, but you will still need to cough up a sizable lump sum for the down payment. If you fail to save up enough, your application is likely to be turned down by lenders.
A minimum down payment of 5% is typically required by lenders, with higher percentages, say 20%, being more favourable. The down payment protects the lenders. Remember also that any down payment less than 20% will normally be subject to mortgage insurance, increasing your costs slightly.
Not Knowing Your Options
Mortgages come in all shapes and sizes, and it can be tremendously difficult to work out which is the best for you and your circumstances. A good estate agent will be able to help you with your choice, but it’s worth knowing the basics in advance. Check out our guides on fixed rate, variable rate, adjustable rate and open and closed mortgages for more information.
Signing up for a mortgage term you don’t quite understand can lead to trouble. The cheapest options are not always the best, and they can result in missed payments and foreclosure if rates increase down the line.
Failing to Shop Around
Since mortgages come in a variety of shapes and sizes, all of which differ slightly from lender to lender, it’s a good idea to shop around. Most buyers will go with the easiest option and stick with their primary bank, but more often than not, they don’t offer the most competitive rates. There’s no harm in speaking with a variety of lenders and discussing the options open to you. You can even search online.
Be advised, if you do approach several lenders, and they need access to your credit report in order to get a quote, it’s best to visit all of them within a two-week window. This way, all of their inquiries will count as one hit to your credit score, which drops slightly whenever a new credit product is applied for.
As with anything, taking your time and educating yourself will prepare you for a smooth journey when applying for a mortgage. Once you break it all down, it’s not as complicated as it seemed at first glance, allowing you to confidently choose the best mortgage for you.