3 Mortgage Mistakes To Avoid

Mortgage Mistakes To Avoid

For most, a home represents the most expensive purchase made in a lifetime, with an associated mortgage noted as the greatest liability to be carried.

It is important to avoid mistakes that could cause an individual to pay far more than they should and get a proper rate for an affordable property that allows life to be enjoyed to the absolute fullest.

If you're in the market for a new place, be sure to avoid these 3 common mortgage mistakes.

Common Mortgage Mistakes

Being House Poor

Being house poor is typically defined as having an excessive or over commitment of costs exclusively related to housing that leaves you with little-to-no resources left over for any other needed expenses, let alone discretionary spending.

When attempting to understand how much house one can afford, it's critical to factor in various expenses aside from bills, including retirement savings, emergency funds, and the cost of furnishing.

Spending less than 25% of pretax dollars is the laymen for determining how much can truly be afforded. Ensure that all costs, including insurance, homeowners' association fees, and taxes, are considered.

The figure that the bank will be willing to lend you does not always match how much a buyer can afford using the 25% rule. For example, if you earn an annual salary of $75,000, you should not devote more than $1,800 per month to association fees, insurance premiums, and mortgage payments.

When looking at Las Vegas homes (or other cities), many first-time owners are taken aback by all the expenses, so it helps to be prepared well in advance before deciding on a purchase.

Failing To Shop Around

The average consumer will work tirelessly to save money on cars, groceries, furniture, and services yet fail to look for a proper mortgage. Borrowers often consider only a single broker or lender and fail to shop around before applying to get a mortgage. Quotes should be acquired from a multitude of lenders. Try the local bank in addition to a credit union for online quotes.

In particular, credit unions establish creative packages to significantly help buyers save money. Every time a lender pulls credit to provide a quote for an interest rate, the owner of the account's credit score is checked. Potential damage to the score can be reduced by acquiring a full set of quotes within the span of 2 weeks, so that it does not look like you are applying for multiple loans from many lenders every time.

Ignoring APR and Mortgage Terms

Do not simply sign on the dotted line without a firm understanding of the entails or fine print. Many lenders enjoy advertising low interest rates by supplementing with high fees. It is essential to compare the annual percentage rates (APR) from the Truth-in-Lending disclosure forms to uncover the cost of the mortgage.

This APR shows the loan's real value. For instance, a 30-year fixed-rate loan on a property valued at $100,000 with an interest rate of 3.85% can have up to a 4.2% APR if factoring in closing costs and a 1% origination fee.

Conclusion - Avoiding Common Mortgage Mistakes

In this article, we’ve discussed three common mistakes people make when getting a mortgage. They are spending more than you can afford and becoming “house poor”; not shopping around for the best deal; and not paying attention to the true cost of the loan.

Check out more articles on buying a home below!

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