6 Mortgage Mistakes to Avoid
For the vast majority of people, purchasing a home is the single most important financial decision they will make in their lives. It’s not easy to back out of a transaction after the final papers are signed, so learning the ins and outs of mortgages before taking the plunge into homeownership makes sense. Here are six mortgage mistakes to stay away from (and what to do instead).
Using Your Cash Reserves to Make a Down Payment
To avoid mortgage insurance and keep monthly payments modest, home purchasers often put down 20% of the purchase price. However, depleting all of your money is a bad idea, especially when there are additional home-buying fees, such as:
- A home inspection
- Closing costs
- Home insurance
What To Do Instead
Add up all of the estimated home-buying costs, then figure out how much of a down payment you can afford. Remember to budget for any large expenditures, such as furniture or appliances, that you may need to make right away. You may always make a monthly extra mortgage payment or add to the principal, but starting out with little cash on hand is a big mistake.
Failure to Obtain Pre-Approval
Consider this scenario: You’ve found the home of your dreams, and it’s within your price range. It turns out it’s also the place where someone else’s fantasies come true. Making an offer with a lot of contingencies, such as mortgage approval, isn’t going to work in a tight market.
What To Do Instead
Pre-approval for a mortgage is a good idea. When you’re up against another buyer, this makes you more competitive. If you’re a veteran, you can also get pre-approval from the Veterans Affairs office. Its rates could help you save money on closing expenses and obtain more house for your money.
Choosing the First Bank That Approves You
If you’re in a hurry to get pre-approved, you could choose the first bank that says yes. However, it’s possible that the rate will be higher than that of other banks or mortgage lenders. Rates and costs vary substantially between credit unions, smaller banks, and internet mortgage lenders.
What To Do Instead
To get the best mortgage rate, shop around. It could help you save hundreds of dollars per month in rent and thousands of dollars in closing fees. Make sure you know everything about your mortgage, including the sort of loan you’ve been authorized for, the term of the loan, and the interest rate.
Buying Too Much House
While it’s thrilling to learn how much you’ve been approved for, one of the most common mortgage blunders is hunting for a home that exceeds your budget. Many first-time homebuyers are unaware that principal and interest make up only half of their monthly mortgage payment. They overlook the fact that property taxes, homeowners insurance, and, in some cases, mortgage insurance are all included in the price. When you borrow to your limit, unexpected expenses can be difficult to meet.
What To Do Instead
Your monthly pre-tax income should not exceed 28 percent of your entire mortgage payment. If you earn $100,000 before taxes each year, or slightly over $8,000 per month, your monthly mortgage payment should be around $2,300. Ask your mortgage lender about the best budget for you.
Paying Full Price for Commission
Another mortgage blunder is paying a real estate agent full commission. The typical commission charge is roughly 5.49 percent of the sale price, which can eat into your potential profits by thousands of dollars. However, commission rates aren’t uniform or fixed. You can bargain for a lesser rate.
What To Do Instead
Work with a low-commission real estate company that negotiates with agents to get a full range of services at a fraction of the cost of traditional real estate. You’ll still have the chance to ask your Realtor questions and pick the finest one for you. The only difference is that you’ll wind up paying less for their services.
Accepting Extra Charges
Several additional charges are visible on the closing documentation if you look attentively. These could include the following:
- Loan origination fee
- Application fee
- Broker fee
- Underwriting fee
- Sign-up fee
- Document preparation fee
- Messenger fee
What To Do Instead
See if these expenses are negotiable or actually essential by speaking with your Realtor or mortgage lender. What’s the bottom line? Before you sign the closing documents, take a good look at them.
Interested In Buying a Property?
Procopio Team at Hunt Real Estate offers specialized, full-time real estate agents who work exclusively with buyers and sellers in Central New York. The result is a world-class value that comes with focus, experience, deep expertise, and a commitment to a proven and unique process that leads to results and has for years.
Our team is ready to discuss your residential real estate goals today. Call us at (315) 928-5394.