It can be a daunting task to purchase your first house. The process is stressful and requires a lot of paperwork for you to secure a mortgage. You have to consider factors like mortgage interest rates etc., to ensure you successfully secure a mortgage. The approach should be well-taught and careful. Below mentioned are some of the mistakes that individuals make when applying for a mortgage, and how you can avoid them:
Not looking at your credit rating before applying for a mortgage
If you do not have a lot of debt to your name, you will naturally assume that your credit score is good and ignore taking a look at your credit report. However, debt is not the only factor that contributes to your overall credit score. The factors mentioned below contribute to one’s overall credit score:
- Missing out or making late monthly repayments
- Filing for bankruptcy
- Having a balance that is close to your credit limit
To avoid this, make it a habit to check your credit score every few months, especially when you are planning to apply for a mortgage when buying a house. If your credit score is low, it does not make sense to take out a mortgage.
1. Emphasis only on the mortgage rate
While it is imperative to find the best mortgage rate, it is not the only factor that you should consider when applying for a mortgage. You should consider the following:
- Is the mortgage fixed or variable
- The term length of the mortgage
- Payment frequency
- Pre-payment ability
Working with experienced brokers like abcmortgages ensures you are choosing the right mortgage that best suits your specific needs. Our mortgage brokers can explain how important the above-mentioned factors are, including offering professional advice.
2. Have a precise plan
Even though you might have a guestimate of what price range of the property you are looking at, it is vital to have a thorough plan. Go through your finances and identify what monthly mortgage payment you can realistically afford, and what home price it translates to. When you get pre-approved, you will get an idea of what price range your lender is willing to approve. With proper planning, you might end up putting a higher offer on a home you can’t afford.
3. The big decision should be made after pre-approval
When you get pre-approved, lenders will expect your debt-to-income ratio and savings to remain the same. Making important purchases with cash or credit can impact your ability to maintain your pre-approval rate. Avoid changing or leaving your job following your mortgage getting pre-approved, as these decisions can affect your income, and in certain cases, your pre-approval could be even revoked.
4. Carefully consider your options
When making a significant investment, it is not recommended to settle for the first option that you come across. It is wise to consider different options, evaluate the pros and cons, and make a well-informed decision based on your specific requirements and budget that would serve you best in the long run. The simplest way to compare options is by scheduling a meeting with a mortgage broker and taking a look at the different rates. Additionally, they will also put you in touch with several lenders to help you make the right decision.
5. Waiving off a financial condition in your purchase offer
A conditional offer is where the buyer and seller agree only after a particular step of the transaction is approved. This offer protects the buyer since the seller most time is required to set the condition. However, in recent times, it has not been practised much. A buyer might feel forced to waive off certain conditions that can protect them. For instance, a financing condition is a buffer that protects the buyer, but most times, it is ignored. It is a clause that allows the buyer to back out of the sale and avoid paying any sale penalty fee if they cannot obtain the necessary funds. If you do have a financing condition in your plan, you can risk the following:
- Losing your initial deposit
- Take legal action
- Forced to go through the sale, which is more than likely to increase your debt
It is normal for buyers to omit a financing condition in today’s real estate market. One must understand the risks involved with the omission.
6. Only saving for your minimum down payment
One of the most difficult to do for a potential homebuyer is to save up for a down payment when buying a house. For a few, it can take a couple of years to save for the minimum down payment amount, which is 5% of the property value. The more money you place as a down payment will ensure you make lower mortgage payments.
Purchasing property is a technical process, the more mistakes, the more stressful it gets. With the help of the mortgage experts at abcmortgages, you are guaranteed a stress-free experience that will get you the home of your dreams at a great price. Please do not hesitate to get in touch with the term today to find out more information about mortgages or to schedule an appointment.