Mortgage Mistakes to Avoid

Believe it or not, when it comes to something as complicated as mortgages, people make mistakes all the time that end up costing them thousands of dollars in fees or interest, or gets them saddled with the wrong type of mortgage that they are going to have to live with for a very long time. When looking for the proper mortgage through this site and with our network of lenders, here are some of the more common mistakes that others have made that you should seek to avoid.

Not preparing your credit properly

If it has been more than a couple of months since you last checked your credit report, then your credit is not properly prepared to get a mortgage for a home. Your credit report is going to be a massive factor in determining what happens with your home shopping experience and what type of loan you will be saddled with for the next thirty years or so. You can leave your credit as it is, possibly with a few blemishes on it and pay more, or you can look into it now to save yourself some headache.

To avoid this problem: You should pull your credit report from the three major agencies; TransUnion, Experian & Equifax, and review them carefully. Pay off any minor debts or dispute others that you feel are not legitimate. Any old accounts that you no longer use, should be marked as "closed/paid in full" and if they aren't, contact the company that managed that debt and have them report it to the agency that the account was closed at your request.

Having a small down payment

There are lots of programs out there that allow borrowers to buy a home without putting down a large down payment or any at all. The famous expression is that "just because you can do something doesn't necessarily mean that you should." This is very true when it comes to zero down for buying a home. No matter how hard strapped you are for cash, if you can't come up with at least 5%-10% down for your home then you should seriously consider that you aren't ready to face the mortgage you will have for this home.

To avoid this problem: There was a time when a new home would not be sold unless the borrower could come up with 20% of the purchase price of the home as a down payment. That was in the old days when people actually had savings and lived within their means. You may not be able to come up with 20% but you should really try your hardest to get that mark. If it means renting an apartment a little while longer while you squirrel away the money, then do it. You will much appreciate it years down the road when you are paying a much smaller mortgage and have more favorable term s on your loan than you otherwise would have had.

Not getting pre-approved

Going shopping for a home without getting pre-approved by a lender is an invitation for home owners to ignore you, treat you as less-than-serious about your shopping experience and to have a less productive experience all around. People who are selling their homes are interested in finding buyers, yes, but they are not interested in showing their home to everyone who thinks they can afford it but doesn't know for sure.

To avoid this problem: Speak with a lender about pre-approval before you go house-shopping. Having a certificate of pre-approval doesn't require a full credit check and underwriting, and it will tell the home sellers that you are serious about buying a home and have done your own legwork. You will get much greater respect from the sellers, the selling agent, and probably improve your negotiating power as well.

Not being prepared for closing costs

When the time comes to actually get your loan after going through escrow, there is more money to be spent. This extra sum can be hundreds or thousands of dollars and it must, under most circumstances, come out of your pocket. Many people go into home buying thinking that once they've gotten their loan, they are set to buy a house and move in without spending a dime of their own money beyond the down payment. Little could be further from the truth. Sometimes owners will be allowed to roll their closing costs into the price of the mortgage (rarely), but this is not usually a good idea, as you will end up paying a whole lot for it in the long run in interest.

To avoid this problem: get a good-faith estimate from the escrow company as to what the closing costs will be and save this money aside out of your income +10% until it is needed.

Another simple mistake people make is not using a real estate agent because they think they know what they are doing, but in reality, they don't.