Out of all of a homeowner’s monthly expenses, the mortgage payment is often the largest. Many buyers (naturally) accept this fact, but because of this acceptance, many of them also don’t take the time to shop around or research in order to find the best deal. The result is that these homebuyers may end up paying more than they should for their home. Below we discuss some of the main mistakes that people make when looking for and taking out a mortgage, with the hopes that you will be able to avoid these pitfalls and save money too.
Mistake 1: Seeing loan rates that are advertised and thinking that that is what your rate will be
Loan rates that are advertised are the rock bottom rates, and, the thing is, the average person won’t typically be able to get these rates. You would basically need to have perfect credit in order to get the rates that are advertised, or you would have to put down a large amount of money in order to get close.
Lenders will go through every aspect of your credit looking for anything that could raise your rate, which puts you further from that lowest rate.
Mistake 2: Going with the first lender and not comparing them to others
Another big mistake people make too often is to not shop around. As with any other type of loan, the lender will only allow for certain rates to be given out, and some companies offer better rates than others… When you talk to a broker and are prequalified, the broker should begin to shop around for you to find the best deals from different lenders.
Mistake 3: Agreeing to terms you haven’t thoroughly read through
The rates that are advertised are not the rates you’ll be paying. Within the terms of your loan, the annual percentage rate, or APR, will be listed. This is the rate that you will be paying, and it often includes other fees.
Understanding the different terms of your loan can be difficult, especially since there are a number of fees that a lender may add to your mortgage. You should keep an eye out for processing fees, charges for pulling your credit, and charges for the appraisal.
Ensure that you read through all of the terms and ask what the different fees are for. You should also verify whether or not any of the fees can be reduced or possibly eliminated.
Mistake 4: Choosing to wait for a lower rate
Some people believe that it’s a good idea to hold out for the lowest possible rate. But no—this is not a good idea. This mistake can come with consequences that may include losing out on the home upon which your heart is set. It’s also important to remember that no matter what rate you get, you still will have to spend thousands of dollars on just the interest before you begin to gain any equity.
Don’t worry so much about the rate now. If rates begin to drop years down the road, you can also always refinance.
Mistake 5: Choosing a loan that isn’t right for you
When choosing your loan, you should consider the conditions of the market and the number of years you’re planning on living in your home. You should not choose your loan solely based on the cost of the home you’re planning to buy.
The way the market is now, the most favorable type of loan is the fixed-rate loan. With one of these, you won’t have to worry about the state of the market. But this is also typically not the best kind of loan to be taken out by those who won’t be in the home for at least five years, as it often takes at least five years to begin to get your closing costs back in equity.
Finding the best mortgage for you can be tricky, but by putting in a little extra consideration and effort, you should be able to find one that will help you accomplish your goals while avoiding the mortgage mistakes discussed above.