09/01/2010 In our previous article, we covered some of the most common mortgage mistakes made by first time home buyers. Our guide continues with five more major mortgage mistakes that you must avoid if you're planning a home purchase.
What else do borrowers do wrong? Here are five more errors to watch out for.
6. They forget preapproval. Maybe you've spoken with a lender and you know you're qualified for a mortgage. That's good. But if you haven't been preapproved, you're on thin ice. The lender doesn't owe you anything. He or she may want to adjust terms when the property appraisal comes in. National interest rates may change tomorrow. You don't have any guarantee from the lender until you've been preapproved. If you skip this step, you might start signing papers on your new home only to discover that your lender has backed out at the last second or that you aren't actually able to get as much money from him or her as you'd thought you could. Get preapproved for a loan before you try to buy.
7. They try to "time" the interest rates. As mentioned above, interest rates change unexpectedly from time to time. Some borrowers and lenders try to "time" the market by waiting for interest rates to drop, hoping that they'll increase again and create a valuable loan package. This is a losing game to play. Nobody can actually predict what interest rates will do from day to day. Your best option is to compare mortgage rates and pick the package that fits your needs. That's all. Simple as that.
8. They don't make a high enough down payment. It's hard to save enough money for a sizable down payment when you're a first time home buyer, but it's essential that you do. Even if it takes an additional year or two to save up, it's well worth your time to make a higher down payment at the outset of the mortgage. This will get you a lower rate and better terms, and you'll have your home paid off that much sooner. Don't trap yourself in a zero-down, interest-only mortgage. You'll be stuck for decades.
9. They run up debt. There's nothing wrong with using debt to finance furniture, home decor, and home improvements for your new residence. But when you start making those purchases before the mortgage deal even closes, you're setting yourself up for trouble. Your outstanding debt will affect your credit score, which will affect the loan amount your lender will offer you. Don't shoot yourself in the foot by making those big purchases too soon. Wait until after the mortgage closes and the home is yours before you run up debt.
10. They co-sign on other loans. There's nothing inherently wrong with co-signing on loans for friends or relatives. During your lifetime, you'll probably do this now and then. That's fine. But don't do it right before you buy a house. Lenders will notice. When you co-sign on a loan, you are technically responsible for that loan if the original borrower is unable to pay. In the eyes of a lender, this is almost as bad as outstanding debt. Lenders will be hesitant to loan money to you if they see that you're a co-signer. Wait to co-sign on your nephew's student loan until after you've closed the mortgage deal.
There are still more mistakes you must avoid. Check back soon for the rest of the list.
