6 Mortgage Mistakes You Must Avoid At All Costs
June 4, 2021
It’s a good time to buy a home. Mortgage rates are low, leaving first-time homebuyers a golden opportunity to secure a loan for buying their dream home. But that does not mean everything is rosy out there. You still need to practice some caution before securing a mortgage.
Here, we will discuss the most common mistakes people make while deciding on a mortgage so that you don’t end up getting stuck in a rut.
6 Mistakes to Avoid When Deciding On a Mortgage
1) Securing A Liar Loan
Liar loans became popular during the infamous real estate boom that came before the financial meltdown in 2007.
A liar loan is a type of loan that requires minimum to no documentation. The lender does not verify your income, or your assets before providing you the loan. Although they were primarily designed for people who had difficulty producing paperwork to verify their income, they became a door for unscrupulous activities by borrowers who abused them.
The problem with such loans was not in securing them but in their repayment. Since the buyer had presented false information and did not have a genuine source of income, they started to fall behind in mortgage payments. This eventually led to them failing to repay the loan and filing bankruptcy instead.
Secure a mortgage only when you know your financial conditions, and have a clear idea of your ability to make monthly payments after you secure the loan.
2) Ignoring A Lender’s Reputation
Mortgage lenders are all about reputation. Choosing a lender purely based on the offer that you are getting is a bad idea. You need to look into the lender’s reputation.
Checking online reviews is the first place to start. Then, look at their licensing. Lastly, get them to share references with you if you are seriously considering using them for your mortgage.
Choosing a disreputable lender is the biggest mistake that you can make in your mortgage securing process.
3) Choosing Adjustable-rate Mortgage
Adjustable-rate or floating mortgages (ARMs) might seem like a home owner’s dream, but all that glitters is not gold. While floating mortgages have a comparatively lower interest rate to begin with, in the long run their interest rates are reset and become much higher than the average market rate.
If you are looking for a mortgage for a shorter duration, say 5 years term, then ARMs can be a good idea since interest rates generally remain low for the first 2-5 year period. On the other hand, if you are looking for a loan for a longer-term, then you must thoroughly assess both payment options and decide accordingly.
4) Making Major Changes In Your Financial Condition
Changing a couple of jobs while you are in the process of securing a loan, or getting a car financed at the same time are two of several major financial decisions that can impact your ability to get a loan. That’s because these decisions are going to increase your monthly repayment obligation.
In simple terms, more debt means more DTI, which makes securing a loan riskier. In extreme cases, it can render you disqualified for the loan that you had previously qualified for.
It is important to avoid making such big financial decisions while you are in the process of securing a loan. Even if you cannot avoid them, it is best to notify the loan officer about such major changes in your life.
5) Not Asking Enough Questions
There is no such thing as a stupid question when taking a loan. It becomes imperative that you clear all of the doubts that come to your mind. Don’t be a stranger, the loan officer is there to answer your questions and it’s their job to provide you with a satisfactory answer.
Not asking enough questions or not clarifying your doubts could land you in trouble. And you will have nobody else to blame for that situation but yourself. Don’t let that happen, do your research, note down your queries, and get them resolved before signing the loan documents.
6) Accepting The First Offer That You Get
The last but not least mistake is to avoid accepting the first offer you get. It’s always recommended that you go loan shopping and look for options in the market. Take time comparing the options, evaluate the pros and cons and snag the right deal from a trustworthy lender.
Securing the best mortgage deal is not only about getting the lowest interest rate but is also about factors like closing costs, lender’s reputation, loan term, and so on. Put in all the hours necessary to get an offer that fits well within your requirements.
Step out into the market and you will find countless lenders claiming to have the best deal. It is up to you to figure out which of them is offering the best deal based on your requirements, your financial circumstances, and your ability to repay the loan. Understand your financial conditions first, and only then expect to get the best loan offer from the lender. So, get started with a thorough assessment of your financial conditions and begin your loan shopping right away!