When buying a house, you will undoubtedly need to take out a mortgage. As you look for one, you will quickly realize that getting a bank to loan you the money for the biggest investment you’ll ever make is no easy task. You quickly realize that are many mortgage pitfalls you need to steer clear of in order to get the best deal possible. To help you find the way, we’ve provided a few pointers:
- Know your credit history. Any lender you work with is going to check your credit history and your credit score, so you should do the same, long before you fill out a loan application. Errors can and do happen, so should be familiar with your history and correct any errors before potential lenders look at your history.
- Know if you eligible for homebuyer programs. Most areas will offer government-sponsored first-time homebuyer programs that may offer better loans rates than you’d find elsewhere. Some programs may also offer loan options for people with damaged credit.
- Get pre-approved for a loan. There is a big difference between “pre-qualified” and “pre-approved.” A pre-qualification is a general review of your income and debts, usually based solely on information you provide the mortgage company which gives you an idea of how much of a loan you could receive. The process to be pre-approved is more complex. You will generally have to provide proof of your income and debts (in the form of tax returns, pay stubs and credit information. The potential lender will also check your credit history. If you complete this process successfully, the lender will provide a written verification that they will actually loan you the money, pending appraisal, title report and purchase contract. In almost all cases, a seller would opt to sell to someone who is pre-approved for a loan as opposed to someone who is just pre-qualified.
- Borrow what you can afford to pay back. Just because you are approved for a loan, doesn’t mean you can afford the monthly payments. Don’t opt to get the maximum loan amount you can only find every cent you make has to go back into making your mortgage payments.
- Shop around for the best rate. Just as your would shop at different retailers for different rates for similar products, lenders may offer different rates for the same loan. Check with several companies to know you are getting the best deal.(Click here for more information on shopping for a loan.)
- Know what you are getting charged for. Lenders may add a litany of fees to their loan amount. When you shop for a loan, ask about any miscellaneous fees in addition to the interest rate and any points you may have to pay.
- Budget for closing costs. It is a reserve corollary of the adage “you need money to make money.” When it comes to getting a home loan, “you need to pay money to lend money.” The day you close on your home and sign the final loan papers can be a very expensive day. You may need to pay for attorney’s fees, taxes, prepaid homeowner’s insurance, the miscellaneous lender’s fees discussed above and points. Your lender should give you a solid estimate of all the closing fees involved, but you should start a savings fund for those fees well before then.
- Keep a savings reserve. With all of the home buying charges and the monthly payments, it might seem like you are hemorrhaging money. While that may be the case, you should also make sure you have some emergency reserves. You need to be prepared if the roof on your new home suddenly springs a leak or if the air conditioning goes on the fritz. If you are already tapped out by buying the home, e such an emergency could turn into disaster.
When looking for a home mortgage, being prepared could save you time and money.By David Plowman