Getting a home is exciting and a major life event. You’re buying something that will take you decades to pay for and it’s both amazing and scary. Taking out a mortgage is a huge endeavor, but many people make mistakes that cost them a lot of money and hassle.
When you’re talking a few decades of payments, a mistake made at the beginning of the loan can haunt you for years. We’ll explain seven of the most common mortgage mistakes people make and what impact it has on your loan.
Don’t make these mistakes and make the mortgage process easy.
Paying Too Much Each Month
You love the house and it’s got everything that you’ve ever wanted. The only problem is it’s outside your established budget. The bank can provide a loan for the amount, but the monthly payment is more than you’d like.
Too many people throw out their budget when they see a house they love. The seller wants you to pay as much as possible but compromising on your monthly budget can make life difficult for many years. You may be able to cover the cost, but there isn’t enough left over for emergencies
If you have a costly car repair or need to replace the furnace one year, then you’ll have a hard time making the payment. Once you’re behind, it’s difficult to catch up.
Don’t Take Maintenance into Account
When you’re deciding on your monthly payment amount, don’t forget about the various maintenance costs associated with buying a home. It’s estimated that a person spends between $2,500-$5,000 a year in home maintenance on average
Some years you may spend less or more, but that’s the average. A decade into your homeownership, you’ll need a new roof and that’s costly. You may need to replace an oven or refrigerator. The furnace or central air unity might go out.
If the home is painted, then it will need occasional painting and siding needs pressure washed cleaning. These are all expenses that go along with owning a home that is outside of the mortgage.
Don’t Shop Around for Loans
Maybe you’ve had the same bank for a decade and naturally want to choose them for a mortgage. You’ve been with them for a long time and know most of the people that work there. Getting a mortgage through them just seems like the right thing to do.
When it comes to making decisions for the next 20 years of your life, you need to think outside of the people and institutions you’ve always dealt with. You want to get the best possible interest rate and that may not be with your neighborhood bank.
Shop around and choose a lender that provides you low interest and you trust. It might be your friendly neighborhood bank, or it might be the bank next door.
Don’t Put Down Much of a Down Payment
Many people are in a hurry to buy a home because it’s a major life event and a sure sign of adulthood. There are programs out there designed to give people a loan with little or nothing down. A standard home loan requires a down payment of 20 percent.
Programs out there allow first home buyers and others to get a loan with as little as 5 percent down or even less. These may seem great at the time because you need to take a few years to save up 20 percent, but it’s not always a great idea.
In addition to lowering the overall price of the home, the down payment lowers the risk for the lender. Many programs that require less than a 20 percent down payment often need mortgage insurance.
This is insurance that provides a portion of the loan back to the bank in case you default. This is a payment that you’ll need to pay for the life of the loan if you get an FHA loan.
Not Working on Your Credit Score
Your credit score is often used as a barometer for not only qualifying for a loan but your interest rate. The better your credit score, the better your interest rate.
If your credit score isn’t great, then you could end up with a higher interest rate for many years until you can refinance the loan.
Before going for a mortgage, check your credit score. If it’s lackluster, then work to improve it for a year or so. Improving your credit score before getting a mortgage can save you thousands in interest over the years.
Forgetting About Fees When Taking Out a Mortgage
You may think that the loan you’re getting only includes the amount for the house plus interest, but many times banks put in fees that you end up paying for years. The fees are usually associated with them handling the loan and the amount differs from place to place.
If you want to know about the fees, then ask the bank or have them explain the annual percentage rate. It includes the fees and they should tell you about it because of the Truth in Lending Act.
Don’t Forget About Closing Costs
Once everything is done and you’re ready to buy the house, there usually closing costs. These are the costs associated with finalizing everything including taxes, title and attorney fees, lender fees and more.
It’s traditionally the responsibility of the lender to pay for closing costs. These could be several thousand dollars. If you think of it, some places allow you to roll the closing costs into the mortgage loan.
If you can’t pay the closing costs, then you can’t own the home and may have to pull out of the deal. You could lose any money you paid for inspections, etc.
Be Careful with Your Mortgage
You need to be careful taking out a mortgage because you’ll pay for it through the years. Even small mistakes can add up through the years, so make sure you get the best loan possible and follow these tips.
If you want to learn more about home mortgages, then please explore our site.