Thinking about buying a house? Don't make these mistakes with your mortgage.
According to USA Today, in January, home sales jumped 16 percent over December’s totals. That means more people are buying and the end of the housing slump might be in sight. It also means mortgages are back.
In the video below, Money Talks News founder Stacy Johnson has four dumb moves you should avoid if you’re planning on applying for a mortgage any time soon. Check it out and then read on for five other mortgage mistakes.
Now, let’s hash out the details on Stacy’s dumb mortgage moves and add a few more…
1. Not checking your credit
The first thing lenders will do is check your credit, so it’s dumb not to know what’s in there before they look at it. Order your credit reports six months to a year before you apply for a mortgage, getting free copies through AnnualCreditReport.com.
Once you’ve got your credit in hand, make it shine. Dispute any errors with the credit reporting agencies. Settle accounts and, if possible, negotiate removal of negative remarks when you do. Pay down as much debt as you can, and pay your bills on time every month. The higher your credit score, the better chance you have of getting both a good loan and a favorable rate.
But don’t be tempted by ads from credit repair professionals. They charge a lot and there’s nothing they can do that you can’t. See Why You Should Ignore Credit Repair Ads + 3 Steps to Fix Your Credit Free for more.
2. Ignoring your rental history
If you’re currently renting, ignoring your rental history can be a mistake. A friend of mine recently applied for a mortgage through the USDA. She had to get a letter of recommendation from her landlord and a year’s worth of bank statements showing she’d paid the rent on time before she could be approved. Make sure you’re paying your rent on time every month leading up to your mortgage application.
Lenders like to see steady employment and a solid source of income. If you’ve recently switched career paths, or have a habit of switching jobs every few months, they might see your employment history as a sign you won’t be able to repay your loan. We’re not saying stick with a job you hate forever, but try and hold out until after you secure a mortgage.
4. Short-changing your down payment
You’ll need at least 20 percent down to qualify for the many conventional mortgages. Make sure you have it in the bank before you start shopping for a loan.
5. Not getting pre-approved
Would you go to the mall without your wallet? That’s what you’re doing when you shop for houses without having finances arranged.
When you’re pre-approved you know how much you qualify for, which makes house shopping a lot easier. Without pre-approval, you could end up wasting time looking at houses out of your price range, or worse yet, lose out on a great deal while you scramble trying to find mortgage money.
6. Not shopping around
Mortgage rates and terms vary by lender, even by day. Some lenders may have tighter requirements and offer you higher interest rates, while other lenders might think you’re a safe bet and offer you better rates. Don’t sign up for a mortgage without shopping around first. We make it easy with our lender search page, but don’t confine your search to the Internet. See Shopping for a Loan or Savings Account? Beware Online Rate Searches.
7. Ignoring fees
Your interest rate isn’t the only charge you’ll see on your mortgage; they’re also loaded with fees like:
- Appraisal – the lender will hire a third-party appraiser, but you’ll pay the bill
- Credit report fee – for checking your credit
- Loan origination fee – fee for starting a new loan
- Processing fee – covers the cost of paperwork
- Underwriting fee – final analysis and approval
- Wire-transfer fee – moving money around
And those are just a few examples. Zillow says fees can equal 3 to 5 percent of your total loan amount – a big number. Don’t ever agree to a loan without first getting all fees in writing. If they’re too high, negotiate them down or take your business elsewhere.
Many mortgage fees are simply add-ons to make extra money for the lender. Challenge them; one good technique is to pit lenders against each other.
8. Not locking in
Mortgage rates change often. The rate you’re quoted when you’re shopping can change, for better or worse, before the loan closes – unless you lock it in.
Most lenders will allow you to lock rates for 30 to 45 days. But be sure you can close the property within that window. If you can’t, continuing the lock could cost extra. So when you’re negotiating your loan and fees, consider attempting to negotiate a longer lock as well.
9. Taking on more than you can afford
Lenders, like real estate agents, are in the sales business – the more you buy and borrow for, the more they make.
Don’t assume that because you qualify for a $500,000 mortgage it’s the best deal for you. Do your own math and make sure you can comfortably afford your payments before you sign up.