There are a few common mistakes made when getting a mortgage. These mistakes can be costly for homeowners. The article explains how such common mistakes can be avoided to prevent problems while getting a home mortgage.
Not comparing rates
One of the most common mistakes made when getting a mortgage is not comparing rates offered by different lenders. Many home buyers talk to their bank and if the rate seems appealing, sign up with the bank without checking other rates. The interest rate determines the monthly payout, and a few percentage points can make a lot of difference.
It is better to avoid this mistake by talking to different lenders and comparing rates offered before making a decision.
Not being aware of the process
Most people are not aware of the process of getting a mortgage and are not even familiar with the terms involved. The concept of locking mortgage rate, mortgage discount points, and details of charges involved need to be understood.
Being completely aware of the process ensures that the homeowner gets the best possible terms, thereby reducing the overall repayment. It also ensures that there are no surprises later when one learns about other charges to be paid.
Not making the full down payment
Those who don’t have cash on hand prefer to choose a lower down payment, instead of paying 20%. The problem is this increases the outstanding and considerably increases the amount to be paid every month.
Private mortgage insurance is needed by those who pay a smaller down payment. Every year around 1% of the loan may have to be paid as private mortgage insurance. All this adds up to costs, and in the long run, this may not be beneficial. It is better to save money and pay a larger down payment to reduce monthly costs.
Not calculating all costs involved
Most homeowners do not make a calculation of all the costs involved. They accept the figures given by the lender at face value. Apart from the down payment and monthly payout, there are other expenses that would crop up.
Appraisal costs, mortgage fees, closing fees, and cost of repair and renovation are all costs that must be kept in mind. A proper breakup of costs needs to be made before going ahead. This ensures the process is smooth and monthly payments won’t be a burden.
Not getting pre-approved
A common mistake people do is not getting pre-approved for a loan. A pre-approval ensures the lender does a credit check in advance and tells you how much you can afford. This will help you understand your limitations and you can buy a home that is within your budget.
When you have a pre-approval from the lender, the mortgage process goes smoothly and the temptation of going over-budget is controlled.