Purchasing a home will likely be your biggest expense in your life; it’s normal to be nervous and uncertain about it, especially with so many options available. Home mortgages exist to help make homeownership more accessible, but there are a ton of misconceptions that can affect eligibility and preparedness. Proper research is key to making the most informed decision when it comes to securing a mortgage, but it can be difficult to sort through misinformation. When on your mortgage shopping journey, you’ll want to avoid some common pitfalls borrowers tend to fall into.
Contacting Only One Lender
Not all lenders are the same! Some lenders have more competitive rates than others. Other lenders may not help you secure the right homebuyer programs that are available in your state. You’ll want to shop around to compare interest rates and mortgage programs to ensure you’re getting the best rate and mortgage for your needs as a homebuyer. Even if you end up choosing the first lender you contact, you’ll have peace of mind knowing you’re getting the best option out there. When you’re shopping for a mortgage, your credit will only take the hit once for a certain period, allowing you to inquire from as many lenders as you’d like without taking multiple credit hits. Take advantage of this time to shop around! Your potential lender should do what they can to keep your business. Look for helpful lenders with attractive rates and mortgage programs you’re interested in.
Not Knowing Loan Types
Many prospective homebuyers aren’t aware that traditional mortgages aren’t the only types out there. Some people never reach their homeownership goals, thinking they need to save 20% for a down payment or they can’t buy a home. There is more than one type of mortgage, and even conventional loans have flexibility in many cases to help more people have access to home purchases.
It’s important to understand your options when it comes to mortgages before you choose one. Mortgage types can vary depending on your location, your potential home’s location, and your income. There are USDA (United States Department of Agriculture) mortgages that provide attractive rates for people looking to buy homes in rural areas. FHA (Federal Housing Administration) mortgages that offer reasonable rates and loan requirements for people with lower credit scores or incomes. Most mortgage programs allow you to put down less than 20% if you agree to mortgage insurance. You have plenty of options out there; you put yourself at a disadvantage if you don’t research them beforehand. Your lenders can help you pick a mortgage that works best for you, too.
Lack of Market Research
You won’t have professional insight into your local real estate market, but you should still come into the homebuying process with research under your belt. You’ll want to learn about average home prices of the same size or location you need. When you come to a lender more informed and prepared, you can avoid settling for a high price or falling for scams. When you understand the market, you’ll also know the importance of making quick, competitive offers and how much you can expect to pay once you purchase.
Having Too Much Debt
Every citizen has debt at some point; it’s normal to have some debt when purchasing large items like cars and homes. However, if you have a lot of debt, you may not qualify for a mortgage. Lenders will often look at your current debts to determine how much more you can afford compared to your income (also known as a debt-to-income ratio). Debts can significantly weigh down your income and lower your credit score, which can affect your mortgage rate and amount. While it’s unrealistic to expect to pay off every cent of debt before inquiring about a mortgage, it’s smart to pay off as much as you can.
Avoiding Homebuying Grants and Programs
Many states and counties have special financial aid for homebuyers, such as first-time homebuyer programs. These programs are meant to give citizens better accessibility to homeownership by lowering closing costs, loan amounts, or interest rates. It’s crucial to look into what your county, city, or state offers in terms of homebuying grants and programs. Some programs provide grants to help with down payment assistance; others provide forgivable loans. Your lender can help walk you through some of the programs and help you apply for them, but it’s very important to do your own research as well. Financial assistance like this is easier to qualify for than many people may think, and it can significantly reduce the amount you owe.
Forgetting About Closing Costs
Regardless of your down payment amount, you’ll need to factor in closing costs when you purchase a home. Closing costs include any insurance, taxes, and fees during the purchase process. These closing costs can add up to thousands of dollars, and not being prepared for this purchase can delay or even cancel your home purchase. Unless your mortgage program guarantees zero closing costs, you will need to save and prepare for closing expenses.
Conclusion
The most important factor to consider when it comes to choosing a mortgage or buying a home is to never write yourself off as ineligible without research. If you don’t have a lot of money saved up, you may qualify for a homebuyer program or low down payment loan. If you have bad credit, there are many loans catered toward similar situations. Consulting with lenders or financial advisors can put you on the right path toward homeownership regardless of hardships or setbacks. The most important weapon you can use is research and knowledge!
Article written by Glenna Hobbs, [email protected]
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