Owning a home, or planning on owning a home can be a stress-free, straight forward process, if you are prepared. However, if you are not prepared, there are many common mistakes that if known, can be avoided.
Applying for a mortgage is the easy part: filling out paperwork, gathering financial documents, and signing mortgage commitments; however in these three easy steps, many people make mistakes. Most of these mistakes are easily avoidable with some preparation and informed advice. Below are the Top 5 Mortgage Mistakes people make when trying to secure financing for their home.
- Failing to choose the correct loan product for their situation
- Automatically renewing their current mortgage with existing lender
- Signing documents without reading them
- Taking it to the limit – running up credit
- Not planning for your mortgage application
Failing to Choose the Best Loan Product for Your Situation
There are many different types of loans out there. There are fixed-rate products, variable (ARM) rate products, line of credit products, 15 Year term, 35 Year terms, and more. However, for every person looking for a mortgage, each has their own unique situation. While one person would benefit from a variable rate product, their neighbor may be better suited to a fixed-rate product. The moral of the story is to explain your current situation and future goals in detail to your mortgage advisor and ensure that he/she selects a product that best meets those needs.
Automatically Using Your Existing Lender, Without Consulting other Lenders
Although you may feel an allegiance with your current lender (financial institution which holds your loan, not your mortgage advisor), they may not be able to offer you the best products. When refinancing or renewing, you must consult other institutions to make sure that what you are being offered is in fact the best rates and terms available. Many times your bank will offer you posted rates in hopes of you signing the commitment without shopping around. Make sure you do your due diligence when refinancing and renewing. This is your home, your mortgage, and your money!
Signing Documents without Reading Them
Never sign documents without reading them. If you are unsure about your understanding, ask for clarification from someone you trust, your mortgage advisor, lawyer, friends, family members. Remember that you are the one entering into the agreement, you need to understand and agree with what you are committing to.
Taking your Credit to the Limit
Make sure that your credit balances are in your favor when in comes to your mortgage application. Lenders are looking for an appropriate debt-to-income ratio. In short: you need to have more income than you have debt. Avoid running up a balance on your credit cards, pay-down existing debts as much as possible.
Not Planning for your Mortgage Application
If you know that you will be needing a mortgage, or refinancing your current mortgage you need to make sure you plan for it. Make sure your credit is in order, if its not, start preparing it. Do not make any purchases on your credit cards that you cannot pay off, if you carry a balance on your credit cards, start paying them down. Refrain from making any large purchases before securing your mortgage. If you are planning on buying a car, wait until after you have secured financing, as your debt-to-income ratio will rise and you don’t want this while trying to secure a mortgage.
Understanding how the mortgage process works and how lenders qualify your loan will help you avoid the above mistakes. If at all possible, avoid all 5 of these mistakes, it will make your mortgage application process much less stressful. Remember that the best way to be a successful homeowner is to learn how to manage your mortgage by making informed, responsible decisions!
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