Getting a Mortgage is no simple task. It's a complex and time consuming process and perhaps one of the most significant events of our lives, at least in financial terms.
Here are 10 potential pitfalls to avoid:
1. Not checking your credit.
Before you look for a mortgage, you should know where your credit score stands. After all, a bad credit score can bump up your mortgage interest rate several percentage points or leave you with no approval.
Be sure you check your credit early - several months before seeking a loan - in case any changes are needed to get it back up to snuff.
2. Applying for new credit alongside the mortgage.
Avoid applying for any other type of credit before and during the mortgage application process. Whenever you apply for new credit, you're considered a greater risk, at least initially. If you apply for a credit card or auto loan around the same time you apply for a mortgage, your credit score might get dinged enough to kill your eligibility or bump up your interest rate.
3. Failing to look at the total housing payment.
A mortgage payment includes principal, interest, taxes and insurance or PITI. Prospective homebuyers often mistakenly do not factor their property taxes and insurance premium into their overall mortgage budget.
The debt-to-income ratio, used to determine if a borrower can make a certain mortgage payment, is the proposed cost of PITI divided by the gross monthly income. A $1200 homeowners insurance policiy would add $100 per month to an escrowed mortgage payment.
4. Not seasoning your assets.
The bank or lender will want to see that you can actually pay your mortgage each month. But without seasoned assets, or money that has been in your accounty for at least a few months, you could be out of lukc. Some borrowers think they can transfer funds from a relatives account days before applying, but this won't fly once the underwriter uncovers the paper trail.
Another key to mortgage approval is steady employment and income. An underwriter will want to know that your monthly income is consistent and is expected to continue into the foresee-able future. So don't jump from job to job too much before applying for a mortgage. If a new job is in the same field, it shouldn't be a deal killer, but a career change will lead to problems.
6. Chasing exotic loan programs.
Shop around for the lowest rate and closing costs, but not at the expense of your mortgage. Anything that sounds to good to be true most likely is. Ifthe payment seems too low, you might be paying interest - only or even negatively amortizing, which means your mortgage balance is growing each month.
It's best to keep it simple to go with a loan program that you can get your head around, such as a fixed rate mortgage.
9. Forgetting to lock your rate.
A mortgage rate means little if it's not locked in. If you're happy with your rate, lock it. Mortgage rates change daily - and sometimes, several times daily. All of those mortgage quotes you obtain are just quotes until you actually tell the bank , lender or broker to "lock it in". Once locked, your rate is guaranteed for a certain period, be it seven days, 15 days or a month. Never assume your rate is locked until you get it in writing.
10. Not reading your loan documents.
It's your responsibility to read and ccept the terms of your new mortgage. Sure, it might be a pain to go through all of the loan documents before signing, but it's a bigger pain to sign up for something that youdon't want or disagree with. Take the time at closing to ensure that you understand everything you're signing and thereby agreeing to. Don't be afraid to ask questions. Otherwise, you could wind up with a mortgage with predatory terms and no place to turn.
YOU DESERVE EXPERT ADVICE!
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