Shopping for a mortgage is one of the most important financial tasks you will do. The mortgage you end up with will be one of the most significant factors in your financial health for the next 10, 15, or even 30 years. Take your time to be best prepared for homeownership and mortgage shopping. To help you get started, we have put together a list below of 5 common mortgage mistakes to avoid, and of course we are always here to help.

1. Overestimating what you can afford

One of the most common mortgage mistakes people make, especially first time homebuyers, is overestimating what they can afford. Don’t waste your time looking at homes you won’t be approved for, or applying for loans that you won’t qualify for.

Remember that your monthly mortgage payment will include more than the principal and interest payment. Your monthly fees will also include:

• Taxes
• Homeowner’s insurance
• Private mortgage insurance (PMI) if you put down less than 20%
• HOA fees

When you calculate your budget, make sure you take all of these things into account in order to make a decision you can comfortably afford for years to come.

2. Not checking for prepayment penalties

Another of the most common mortgage mistakes people make is not reading the fine print of their mortgage and assuming they can pay more on their loan. In some cases, there will be prepayment penalties attached to the loan. When you apply for a mortgage, make sure you speak with your loan officer about whether there is a prepayment penalty attached to the type of loan you are considering.

3. Skipping pre-approval

Especially in a real estate market that is highly competitive, sometimes called a seller’s market, skipping the pre-approval process is likely to cost you the home you love. Without pre-approval, you will likely see another buyer’s offer accepted before you can put your offer in.

Take the time to talk with a loan officer and get pre-approved to avoid one of the most common mortgage mistakes people make, and avoid falling in love with a house you won’t be able to purchase in time.

4. Opening new credit accounts during escrow

One of the most common mortgage mistakes people make is opening new credit accounts or making a large credit purchase while they are in escrow. This is a fatal mistake to make, as it often changes the credit score or debt-to-income ratio enough to affect the borrower’s eligibility.

Even if you are fully confident you can afford the purchase or be responsible with the new credit account, wait until after you have closed on your mortgage to make any moves in order to avoid forfeiting your mortgage approval.

5. Forgetting about the other costs of homeownership

Remember, in addition to your monthly mortgage payment (which will include more than just the principal and interest payment), you need to have a cushion available to cover miscellaneous costs of homeownership, including:

• Regular maintenance
• Furnishing the home
• Emergency repairs
• Lawn care and landscaping
• New appliances or appliance repair
• Renovation and updating
• Seasonal maintenance like sprinkler blowouts, holiday decor installation, gutter clearing, pool maintenance, or brush clearing

You have probably hear the term “house poor,” and it’s something you want to avoid. Even if you can pay your monthly payment, it is important to make sure you have enough of a financial buffer to support your lifestyle and continue to build your savings.

When you are ready to begin the pre-approval process, we are here to help. We have a team of knowledgeable and friendly loan officers to walk you through the process of becoming a homeowner. Contact us any time to get started!

Have more questions? Get pre-approved today with one of our trusted lenders throughout the Roseville CA area

Contact Me Today

MORE FINANCIAL TIPS TO HELP GET YOU STARTED:

• How to Get Pre-Approved for a Mortgage
• Steps to Determining Your Mortgage Budget
• 5 Benefits of Buying a House with Good Credit
• The Most Important Steps Toward Buying Your First Home
• First Time Homebuyer Mistakes to Avoid
• What is the Minimum Down Payment for a House

The terms pre-approval and pre-qualification might be interchangeable but to a lender there quite different. You might think your pre-qualified to maintain a monthly housing payment when in fact you’re not really pre-approved through a lender. Let me try to explain.

Pre-qualification is simply some basic numbers either over the phone or on a pre-qualification calculator you have found online. You put it how much you make or you tell the person over the phone how much you make on an annual basis and approximately how much debt you have. Couple this with the interest rate and any property tax and insurance should give you a monthly mortgage payment that will fit your budget. However, this is quite different from an actual pre-approval.

Pre-approval means a lender or mortgage advisor will run your credit, go through all your debts, income, assets, and liabilities to determine how big of a risk you are by taking on a mortgage payment.

Lenders don’t want to loan money on borrowers they feel are high risk. For instance, if you have over 50% of your income going towards debt, they are hesitant about you incurring any more debt. If you make $60,000 a year and half of your income is going towards two new loans, medical bills, and credit cards, taking on a mortgage may not be the best financial decision for you now. If you make $250,000 a year and you have less than 20% of your income going toward debts, you are a much lower risk applicant and therefore can afford a higher-priced home.

Before you buy a house, lenders and buyers need to know how you’ll pay for it. Did you know that nearly 90% of homebuyers finance the purchase of a home loan? So, lenders need to know how you can afford to make your mortgage payment and this means getting information from your bank, credit union, employer, pay stubs, creditors and the like to find out exactly how much you owe every month and how much you can afford in a monthly mortgage payment.

Simple pre-qualification means that you are conditionally approved to buy a home up to a certain price based on basic information. Pre-approval means we’ve done the research and we know for sure that if nothing changes between the time you make an offer and the time the transaction closes we can 99% guarantee that you can afford this home. Of course, this is in a 100% guarantee. Things can change throughout the transaction so if you lose your job, make any large purchases, rack up extra-debt, or make major financial changes, it can really affect your chances of getting the home loan, pre-approval, and the home itself.

Pre-qualification typically doesn’t require the documentation and proof of funds needed as pre-approval does. Pre-qualification is really the first step to finding out how much home you think you can afford. Pre-approval proves this assumption. The differences between pre-approval and pre-qualification are really a matter of reporting financial information versus providing documentation for it. And in this case, once you are pre-approved, your lender will issue a letter of pre-approval. This comes in very handy when making an offer on a home. You can show sellers that you are serious about buying because you’ve done your financial homework, not just filled out a few boxes on an online calculator.

Is it okay to shop around for a home loan?

Of course! Just like your shopping for the right home, shopping for the right mortgage can mean the difference of several thousands of dollars. You want to make sure you get the right loan, terms, and service that you need whether it’s a conventional loan with a 20% down payment or a USDA loan with zero down and very low closing costs. You have to find what works for you and tell lenders that you are shopping around because they’re more likely to offer competitive rates.

Have more questions? Get pre-approved today with one of our trusted lenders throughout the Roseville CA area

Contact Me Today

MORE FINANCIAL TIPS TO HELP GET YOU STARTED:

• How to Get Pre-Approved for a Mortgage
• The Economic Impact of Buying a Home
• Steps to Determining Your Mortgage Budget
• 5 Benefits of Buying a House with Good Credit
• The Most Important Steps Toward Buying Your First Home
• First Time Homebuyer Mistakes to Avoid
• What is the Minimum Down Payment for a House