If you’ve decided to buy your first home, you’re going to need to get a mortgage. The process of purchasing a home and getting a mortgage may seem complicated but it doesn’t have to be if you educate yourself.
This is a guest post by RateHub.
Here are five mistakes you should avoid:
1. You don’t get pre-approved
Before you start searching for a home, you need to find out what you can afford. For a rough idea of what you can spend, you can try using a mortgage affordability calculator first. You’ll then want to go to a lender, who will verify your information, check your credit, and tell you the amount you’ll qualify for. A number of lenders will hold your mortgage rate for a set number of days, such as 60, 90, or 120 days.
2. You don’t compare rates
Consumers like it when they can get a deal. They shop around, look for the retailer with the best price, and make a purchase. But when it comes to getting a mortgage, a lot of consumers walk into their local bank branch and expect to get a great rate because they’re a loyal customer. Unfortunately, this isn’t always the case. There may be better rates out there so it pays to shop around and look for the best mortgage rates.
3. You don’t choose the payment schedule
Buyers often choose to make payments on their mortgage every month. But many lenders allow you to make weekly, biweekly, accelerated weekly, or accelerated biweekly payments. Choosing one of these options can reduce the amount of interest you pay, thus saving you thousands of dollars. Making more frequent payments can also shave years off of your mortgage amortization.
4. You apply for additional credit
Once you’ve been pre-approved, you might think you’re guaranteed to get the mortgage and the rate you were approved for. However, lenders may check your credit again one more time. Signing up for additional credit cards, getting a line of credit, or co-signing a loan could show up on your credit report and have a negative impact on your credit score. That’s why you shouldn’t try to get more credit before getting final approval on your mortgage.
5. You don’t budget for closing costs and other expenses
Purchasing a property can end up being a lot more than you think. There are expenses called closing costs, which include legal fees, title insurance, and land transfer taxes. These costs aren’t included in your mortgage. To calculate these costs, assume they’ll be between 1.5% and 4% of the home’s purchase price. You’ll also need to pay for moving expenses and utility hookup fees. And expect to eat out or order takeout a few times because you probably won’t be completely unpacked for the first couple days after you move in. Budgeting for these extra expenses will make owning a home and getting a mortgage less stressful.