Getting a mortgage is a complex and time consuming process. As a matter of fact, it is one of the most significant events in our lives. Therefore, it is very important not to make any mistakes during this process. Unfortunately, there are people who do not know the type of mistakes to avoid during this life changing process. Listed below are the major pitfalls to avoid.
Failure to Check Your Credit Score
Your credit score directly affects mortgage interest rates applicable to you. Having a poor credit score can increase your mortgage interest rate or in a worst case scenario, leave you with no approval for a mortgage. Therefore, you should check your credit score several months before searching for a mortgage. In so doing, you will have enough time to increase your credit score if it was bad.
Applying for Credit Alongside the Mortgage
You should not apply for loans before or during the mortgage application process. When you apply for a new loan, you’re seen as a credit seeker. If you apply for a car loan or a new credit card during the mortgage application process, your credit score might get hurt enough to increase your mortgage interest rate or kill your eligibility for the mortgage.
Failing to Look at the Total Mortgage Payment
One of the most common mistakes made by home buyers is failing to factor in property taxes and insurance premiums into their total mortgage budget. All mortgage payments consist of four things; the principal, interest, taxes and insurance premiums. The DTI ratio which is used to determine the type of mortgage payment you qualify for is calculated by dividing the total cost of the mortgage (including taxes and insurance premiums) by your gross monthly income.
The underwriter will want to know that your monthly income is consistent and that you will continue to make the same amount of money or more in the future. Therefore, you should not jump from one job to another before applying for the mortgage. If you have to change jobs, wait until the deal is finalized.
Not Exploring Other Options
Being pre-approved by one bank doesn’t mean that you must obtain your financing from them. You should shop around and explore other options. Check with more than one bank as well as other lenders. If looking around is too much for you, you can seek the assistance of a mortgage broker. The broker will be able to get you the lowest rate with favorable terms.
Forgetting to Lock Your Interest Rate
Mortgage rates are very volatile. The rates change daily and in some cases several times a day. If you are happy with your current mortgage interest rate, ask your financier or broker to lock it in. once it is locked in, your mortgage interest rate is guaranteed for a specified period of time. You should never make the assumption that your rate locked until it is written down on paper.