Buying a house is one of the most important decisions you will make in your lifetime. Most people need to secure a mortgage loan to buy a house, and if not done correctly, you can encounter unexpected financial consequences. Here are some of the most common mistakes home buyers make when seeking a mortgage and how to avoid them.
- You are not shopping with different lenders. You’re only hurting yourself if you don’t shop around for the best rate you can get. Half a percentage point can amount to a lot of money over time. The difference between a 4.5% and a 4% interest rate on a $200,000, fixed-rate, 30-year mortgage is $59 less monthly. And make sure you factor in closing and mortgage insurance costs to the final tally.
- Do not review your credit score ahead of time. A credit score will indicate to lenders your rate or, in some cases, whether they will grant you a loan. Looking at your score before the loan process, you can head off any red flags and take steps to correct any solvable credit problems.
- You are not getting pre-qualified or pre-approved. Getting pre-qualified lets you know what kind of home you can afford and your monthly payments. And, if you go through the pre-approval process, you can get a more accurate picture of how much a bank will lend you and streamline the loan process with a shorter contract period.
- You are committing too much income for housing costs. Determining how much you can afford for a house payment means taking other expenses you may incur over the life of the loan into account as well. Will your kids be going to college? Will you need a new car at some point? A good rule of thumb is figuring out 28% of your pre-tax income to determine how much your monthly mortgage payments should be. For instance, if you make $80,000 annually, you shouldn’t devote more than $1,866 monthly to a house payment.
- You are not completing the mortgage application thoroughly. Whether intentional or not, leaving financial liabilities off your mortgage application can create problems, including getting rejected or not being able to make payments. The most common items left off are alimony payments or deferred student loans.
- You do not need to put as much money down. Many buyers fear having to put down 20% for a loan payment. Many loan options require less than 20%, and some have no down payment. An FHA loan allows a down payment of 3.5% in all U.S. markets, and HomeReady™ loans through Fannie Mae require only a 3% down payment. Typically, VA loans need no down payment for qualified applicants. Another option is a piggyback loan, which allows a borrower to take out two loans simultaneously, one for 80% of the home’s value and the other for an additional percentage of the home’s value, with the borrower contributing the remaining percentage of the home’s value with their funds.
- You can get a VA loan if you qualify. Every year, thousands of veterans and active-duty military, including the National Guard and reserve units, get conventional home mortgage loans when eligible for a VA loan. VA loans typically have lower interest rates than traditional mortgages, allowing for higher debt-to-income ratios and lower credit scores. In a 2014 survey of 2,000 Iraq and Afghanistan Veterans of America Association members, only 36% said they applied for a VA loan.
Buying a house is a stressful enough undertaking. Review these mistakes before looking into a home mortgage loan, and you could save yourself some money, time, and headaches. For more help securing a home loan, contact the mortgage experts at NASB at 888-661-1982 or click here for a free rate quote.
