08/31/2010 A mortgage is a complex financial instrument that should be handled with intelligence and care. Lives have been ruined and relationships broken by financial duress related to mortgages, and of all the money you'll spend in your life, the majority of it will likely go toward your home purchase. You'll pay this money in the form of a mortgage. There is a lot at stake.
Don't worry, though. This guide outlines five of the most common mortgage mistakes made by first time home buyers. Read on to find out what many first time home buyers do wrong and how you can do it right.
1. They don't set financial goals. Home ownership is not for everyone. You'd be surprised how many first time home buyers are in the market simply because they think that's what they're supposed to do. This is wrong. Before you even consider buying a house, think about your lifestyle and your long-term financial goals. Do you need a house? If so, do you need a big house or a small house? A house with land? A condo? A house that will last forty years, or a one that will sell quickly in five? If you can't answer these questions, you're not ready to purchase.
2. They don't compare lenders. The most important factor in selecting a mortgage is the lender. Every lender offers different rates, terms, and loan packages. Find the one who can meet your needs most effectively. Compare mortgage rates, compare loan terms, compare closing costs and administrative fees. Most importantly, though, find a lender you can trust. You'll be working with him or her for many years to come.
3. They only compare interest rates. Comparing mortgage rates is an important part of selecting a lender and a loan package, but it's not the only part. You must compare everything. Loan terms, closing costs, administrative fees, and other costs all contribute to the overall expense of a mortgage.
4. They pick the lowest mortgage rate. This isn't necessarily a bad thing. The lower your mortgage rate is, the better off you'll be financially in the long term, right? Probably. But if your low mortgage rate comes at the price of a 40-year loan term, you'll likely end up paying more money over time than you would have with a shorter mortgage at a higher rate. Calculate these things before you buy. Don't just take the lowest rate your lender offers.
5. They have poor credit and don't fix it. Your loan rates and terms will be defined by your credit score. Keep that in mind. A bad credit score will get you a bad mortgage, and you'll have that mortgage for the next 30 years or until you refinance or sell your home. It's worth it to spend a year or so repairing your credit before you consider buying a home. It really is. Even if it takes two or three years, it's worth it. You'll save that much money.
These five mistakes are among the most common made by first time home buyers. There are others, though. Check back soon for another list of mistakes to watch out for.
