Buying a home is the largest purchase that many of us will ever make. The loan that you get to make this purchase will be with you for a long time, so mortgage mistakes can be costly. Not taking the time to research what will likely be the biggest debt of your life could be devastating to your financial future. The good news is there are some mortgage mistakes that are easy to avoid when you decide to buy a home.
Before you begin looking for your home, you need to know where your credit rating is. Checking your credit reports from all three major credit bureaus is a crucial first step in being smart about getting your mortgage. Surprises on your credit report can end your dreams of home ownership in an instant. Even if you could still get a mortgage with the negative items on your report, you will be paying a much higher interest rate, which means a smaller mortgage with higher payments. Taking the time to review the items on your credit report up to six months before you look to buy a home will give you ample time to repair any negative items that may be reported.
You would not go shopping for groceries without bringing any money; shopping for a home should be no different. Taking the time to be preapproved for a loan before you look for a home is important. It is also important to understand the difference between prequalified and preapproved when you talk to a lender. Getting prequalified for a mortgage is not a difficult process. It is a general statement where the lender says about how much you could possibly borrow based on the information that you provide them. A preapproval is a much more detailed process. With a preapproval, you will provide documentation of your income and your credit history will be reviewed before the lender will agree, in writing, to offer you a mortgage loan, putting you in a much stronger position to buy.
Many of the homeowners who are facing foreclosure in today’s real estate market made the mistake of borrowing too much money. Most first time homebuyers seriously underestimate the cost of home ownership, and a lender is perfectly content with allowing you to borrow the most money that you possibly can. In addition to the mortgage payment, you will have to pay homeowners insurance, and taxes. Also, the utilities and any repairs and home maintenance can add up. It is important that you make sure that you can comfortably afford the mortgage that you take on, and any other costs associated with owning a home.
Following these simple tips can help you avoid the mortgage mistakes made by many buyers. If you take as much time to find your mortgage as you do to find your home, you can keep the dream of homeownership from becoming a nightmare.
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About David Goldstein — David Goldstein is an Owner and Founding Partner of Express Schools, LLC. which operates online education providers Real Estate Express, Insurance License Express and License Tutor. Follow him on Twitter.