Applying for a mortgage and taking on the biggest debt of your life can be needless to say a very frightening experience and most people don’t fully understand the loan process. It’s confusing and with the pile of paper work, fees and terms, it’s easy to make mistakes. Here are some things you can do to prevent those mistakes.
1. Check your credit at least six months in advance so you have time to challenge and fix any errors on your report if necessary.
2. Look into first-time homebuyer programs. These programs are typically sponsored by state, county or city governments and often offer better interest rates.
3. Get pre-approved for a loan. Many people confuse “pre-qualified” with “pre-approved”. The pre-qualified term means that a lender tells you how much money you may be able to borrow where as pre-approved involves actually applying for a loan and if all goes well, the lender agrees in writing to have a loan lined up.
4. Don’t borrow more money than you need. Remember you will still have property taxes, insurance, etc. on top of your mortgage payments.
5. Shop around for rates and terms. Know what the current interest rates are to prevent being stuck with longer terms or higher rates costing you thousands of extra dollars.
6. Junk fees add to the profits being made by lenders. Although some of these fees are legitimate be sure to check with different lenders on the fees charged and compare with other lenders.
7. Plan for closing costs. Since these costs can range between
2 % and 7% of the selling price of the house, get a good-faith estimate from
your lender and make sure you have that amount available in your account.
Have enough cash on hand after closing. Be sure to have reserves for unforeseen
circumstances that will inevitably happen. More and more lenders are requiring
borrowers have three months reserves after closing to make sure mortgage payments
are made on time.
