For those interested in being a homeowner and applying for an FHA loan, You are now required to have a minimum FICO score of 580 to qualify for the low down payment advantage, which is currently at around 3.5 percent. If your credit score is below 580, however, you aren't necessarily excluded from FHA loan. Applicants with lower credit scores will have to put down a 10 percent down payment if they want to qualify for a loan eligibility. Go to @thejonescompanies for more details
One topic that doesn’t get discussed enough when it comes to home financing are the common mortgage mistakes that are made. Truth is, there is someone out there right now making a mistake that is likely costing them their opportunity to buy a home.
It’s extremely important that when buying a home, buyers are educated on the most common mortgage mistakes made so they can avoid them at all costs. Making one of the most common mortgage mistakes can be the difference between a buyer getting approved for a loan or not.
Below you’ll find out 12 of the most common mortgage mistakes made when buying a home. If you’re thinking about buying a home or are currently in the market, make sure you avoid the following 12 mistakes.
1.) Not Using A Local Mortgage Company
One of the first things I discuss with buyers is the importance of understanding that real estate is local. As a Houston Area real estate agent, I have the ability and experience to help assist Houston area buyers and sellers. Asking me to help a buyer or seller in San Diego would simply not be fair to the customer or myself.
Just like I’m not able to provide quality real estate advice to a buyer or seller on the other side of the United States, a mortgage lender in Dallas, TX cannot provide quality service either. One of the biggest mortgage mistakes that is made when buying a home is not selecting a local mortgage company.
There are hundreds of reasons why real estate markets are different and asking a mortgage company located in another city or state to provide quality service isn’t a smart idea. It’s always suggested when buying a home that you hire a local mortgage company.
If you’re unsure how to find out who the top mortgage lenders are in your area, there are several ways to find out. One of the best ways to find a top mortgage lender in your area is to ask an experienced and successful local real estate professional. Top real estate agents in your area will have recommendations to some fantastic mortgage companies.
2.) Getting A Mortgage Pre-Qualification, Not Pre-Approval
A mortgage pre-qualification sometimes is only as good as the piece of paper that it’s printed on. A mortgage pre-qualification is often issued by a mortgage lender without doing any research on the potential borrower. Many times a mortgage pre-qualification is issued based on the information a potential borrower provides to the lender. It’s optimistic to think that all potential borrowers are going to be 100% honest when attempting to get a pre-qualification, but that’s simply not the case.
Getting a mortgage pre-approval is highly recommended when buying a home for many reasons. A mortgage pre-approval is issued only after a lender reviews pay stubs, tax returns, credit reports, and other important financial information about a potential borrower.
Bottom line, not getting a mortgage pre-approval is one of the worst mortgage mistakes made by buyers. Taking the additional time required to get a mortgage pre-approval and putting forth the extra effort will pay huge dividends when buying a home.
3.) Assuming All Mortgage Products, Lender Rates, & Terms Are The Same
Another mortgage mistake often made by home buyers is believing that all mortgage products, lender rates, and terms are identical. An important decision that must be made when buying a home is deciding which type of mortgage is the best for your situation.
Is a 15 or 30 year mortgage best? Is a conventional or an FHA mortgage best for you? Is an adjustable rate mortgage or fixed rate mortgage best?
These are just a few mortgage products that lenders will offer. Each of these mortgage products will offer different terms as well as rates. It’s highly recommended that you know how to interview real estate agents when buying a home and it’s no different when deciding on financing.
There are several questions that you should consider asking mortgage companies when shopping around for your home financing. Below are some of the best ones to ask potential lenders.
Which type of mortgages do you offer?
What are the current rates for each mortgage product?
What are the costs associated with each mortgage product?
What are your credit score requirements for each mortgage product?
Why should I use your company to obtain my home loan?
Asking these questions maybe difficult for some buyers, but asking them can tell a buyer a lot about the lender. Buyers who don’t realize there is a difference between mortgage products, each lenders rates, and the terms are potentially costing themselves hundreds of dollars.
4.) Put No Money or Small Amount Of Money Down
There are several mortgage products that allow buyers to purchase a home with no money or a small amount of money down. While this may sound like a fantastic opportunity, it’s actually one of the most common mortgage mistakes.
For example, buyers who’re obtaining a home loan that allows no money or a small amount of money down are actually putting themselves at a disadvantage when compared to other buyers in the marketplace. If a property has multiple offers and one buyer is putting a large amount of money down and one is not, most sellers are likely going to accept the offer with the larger down payment, assuming the majority of the other terms are similar.
Certainly if you’re unable to purchase a home with a large amount of money down, taking advantage of no money or small down payment home loans is a good idea. There are many buyers that’re capable of putting money down on a home but choose to make this mortgage mistake and put no money down.
Check out this excellent video below which discusses some of the no down payment mortgage mistakes to avoid!
5.) Ignoring Credit History & Score
Credit history and scores have a huge impact on a buyers ability to obtain a home loan and also in determining the mortgage rate. Ignoring credit history and scores is another common mortgage mistake that’s made when buying a home.
When buying a home, buyers should be aware of their credit history and score. One of the first steps to getting approved for a mortgage that a lender will take is to pull and review a buyers credit report. Buyers should be aware of that there are three credit bureaus that’ll be reviewed when getting a mortgage. The three credit bureaus are Equifax, Transunion, and Experian. These three credit bureau reports are often put into one clean report often referred to as a Tri-Merge credit report.
Depending on the type of mortgage a buyer is attempting to secure will determine what the minimum credit score requirements are. In addition, mortgage companies have different guidelines, also referred to as mortgage overlays, which can impact credit score requirements. For example, many mortgage companies will require a minimum score of 640 but others may allow as low as a 620 credit score, depending upon other circumstances of the buyer.
It’s extremely important when buying a home that buyers are aware of their overall credit picture. Ignoring credit history and scores is one of the worst mortgage mistakes made by buyers.
Ask any experienced real estate agent if they have any horror stories of buyers adding too much debt prior to buying a home and I’m certain you’re going to hear dozens of stories. As a buyer is navigating through the home buying and mortgage process with the assistance of their Realtor®, one of the most important pieces of advice is to not add any additional debts.
Adding too much debt when going through the mortgage process can mess up a buyers debt-to-income ratios, which ultimately can result in being denied a mortgage.
7.) Skipping The Rate Lock
When a buyer is completing their mortgage application, one of the decisions they’ll have to make is whether to lock in their mortgage rate or not. Another most common mortgage mistakes that is made when buying a home is skipping the rate lock.
The mortgage rate lock is an agreement made between the lender and the borrower which secures the current prevailing mortgage rate for a specified amount of time. Mortgage rate locks can vary in time from 7 days to 90 days.
Buyers who commit this common mortgage mistake of skipping the rate lock leave themselves open to some serious risk. If a buyer decides to float their mortgage interest rate and not lock their rate, they may end up with a much higher rate if rates were to rise. For example, if a buyer passes on a rate lock at 4.00% and a week later the rates rises to 4.5%, the buyer cannot take advantage of the lower rate of 4.00%.
If a buyers rate lock is expiring and there is still no closing date set, they do have the option to extend their rate lock. The cost of extending a rate lock will vary from lender to lender. The lender will want to know why the closing is being delayed and if it looks like it’s only going to be delayed a few days, many lenders will extend the rate lock at no cost to the borrower.
8.) Waiting To Shop For Homeowners Insurance
As mentioned above, shopping around for the best mortgage company and rates is highly recommended. The same goes for shopping for homeowners insurance. There are many buyers who make the common mortgage mistake of waiting to shop for homeowners insurance until the last minute.
Whether a buyer is getting homeowners insurance for the first time or the fifth, it’s important to remember that just like interest rates can fluctuate from lender to lender, homeowner insurance rates can fluctuate from one insurance provider to another.
Homeowners insurance will be required for any buyer that’s financing their home purchase, so it’s critical to shop around for homeowners insurance early in the home buying and mortgage process. Buyers who make the mortgage mistake of waiting to shop for homeowners insurance often delay their own closing because the loan will not be funded until homeowners insurance is purchased and paid for.
9.) Opening Up New Credit Lines
There are many home buyers who believe opening up new credit lines is harmless as long as they don’t run up balances on them. This is a big misconception and opening up new credit lines is actually one of the most common mortgage mistakes.
Anytime a new credit line is opened up, whether it’s a credit card or a personal loan, a credit inquiry will be made which can impact a borrowers credit scores. It’s important to find out anytime a new credit line is being opened, whether it’s during the process of buying a home or not, is whether the credit inquiry is going to be a hard or soft inquiry because there is a difference.
10.) Neglecting To Consider The Total Costs Of Owning A Home
Owning a home is not as simple as paying the monthly mortgage and waiting until the next months mortgage is due. Believing that simply paying the mortgage and not considering other costs of owning a home is another common mortgage mistake made when buying a home.
There are actually many costs associated with buying a home. Before buying a home, it’s vital to understand how much it costs to buy a home. This includes taking into account the costs of potential repairs, utilities, and other living expenses such as groceries and auto insurance.
There are many mortgage companies who will not explain to a buyer that there are additional costs involved in owning a home. Buyers who neglect to consider all the costs of owning a home often find themselves in a vulnerable position in the future, especially if they’re buying towards the top of their budget.
11.) Sporadic Job History
One of the most important factors that mortgage companies take into consideration when approving or denying a borrower is their job history. A buyer that’s had a sporadic job history or that’s had several different jobs over the past couple years may have a difficult time getting a home loan, unless the jobs are in a similar line of work.
Another popular mortgage mistake made when buying a home is having a patchy job history. Any buyer who is preparing to get approved for a mortgage needs to remember that job stability is vital to getting approved for a home loan.
12.) Not Paying Attention To The Fees Associated With Getting A Mortgage
Last, but certainly not least, not paying attention to all the fees associated with getting a mortgage is another common mortgage mistake. Mortgage products and rates will vary from lender to lender, as mentioned above, and the same goes for the fees a lender will charge.
Buyers need to ask any potential lender what the costs of getting a mortgage through their company will be. It’s recommended to have those costs in writing in order to compare companies.
Some of the most common fees that’ll vary from lender to lender include the origination fee, credit report fee, processing fee, and underwriting fee. These mortgage fees can vary significantly and can potentially cost a buyer a significant amount of money.
If you’re thinking about buying a home and you’ll be obtaining a home loan, you must avoid these common mortgage mistakes. Making one of the above 12 mortgage mistakes will throw a huge wrench into your home buying experience.
If you’re not 100% sure whether or not something will impact your ability to get a mortgage, ask beforehand. Buyers who decide to make decisions without asking a professional end up being very unhappy, especially if they’re unable to obtain a home loan.
About the authors: The above article "12 Mortgage Mistakes To Avoid When Buying A Home"was written by Andres Jones of the The Jones Team at Realm Real Estate Professionals. With over 30 years combined experience, if you’re thinking ofselling orbuying, we’d love to share our knowledge and expertise.
We service the following Greater Houston areas: Sugar Land, Missouri City, Katy, Cypress, Pearland, Spring, Stafford, Richmond, Rosenberg, Fulshear, Woodlands, Conroe, Humble, Kingwood, Crosby, Baytown, Beaumont, and Galveston, TX.