When you’ve never applied for a mortgage loan before, the process can be quite confusing. A mortgage is the biggest loan most people will ever get, so it goes without saying that the mortgage process is pretty intense. That being said, as you take the steps to getting a new mortgage loan, make sure you avoid the most critical mistakes.
Not checking your credit first.
Well before you start applying for mortgages, when you’re in the “I want to by a house” stage, you should check your credit. It’s best to get rid of any credit problems before you apply for a mortgage since it can take months to clear up some errors. If you have errors on your credit report, you can dispute them with the credit bureaus. You’ll also need to take care of unpaid delinquencies and collection accounts if you want to get a mortgage.
Failing to shop around.
It’s perfectly fine to get quotes from different mortgage lenders. In fact, that’s what you should do. If you don’t shop around, you never know if you could be getting a better rate somewhere else. Credit scoring formulas won’t penalize you for mortgage shopping as long as you do all your shopping within a 14-day to 45-day
Confusing pre-qualification with pre-approval.
When you get a mortgage pre-qualification, the lender estimates how much mortgage you’d qualify for based only on information you give. Mortgage pre-approval goes a step further, includes a mortgage application and a credit check and tells you the exact amount of mortgage you would be approved for. If you only get pre-qualified, the mortgage you’re actually approved for might be less than what you offered. You’d have to start all over again.
Not doing your own research.
The people you encounter in the mortgage process – your realtor, mortgage broker, lender, etc. – all benefit from the decision you make. The information you get from them can be biased. There are resources out there that help you learn the mortgage process. You’re much less likely to be taken advantage of when you do your own mortgage research rather than rely on what others have told you.
Taking on more mortgage than you need.
Just because you qualify for a big mortgage doesn’t mean you should actually take it. Before you apply for a mortgage, decide how much you want to pay each month on housing costs and use an online mortgage calculator to determine the mortgage size you’d need to get that monthly payment. Only apply for that amount. Your budget will thank you later.
Keeping your debt.
Pay off as much debt as you can before you get a mortgage. Not only does reducing your debt help you qualify for a bigger mortgage, it also makes it easier to afford the mortgage you ultimately get.
Forgetting about closing costs.
Closing costs are paid at the time of closing. You need to have enough money in your checking account to cover those closing accounts, which include the mortgage fee, appraisal fee, loan origination fees, etc. Expect closing costs to be between 2% and 4% of the selling price. They could be higher, though. Ask your lender for the amount of the closing costs early in the loan process so you’ll be prepared to pay them at closing.
