Mortgage Mistakes Buyers Can Avoid
Purchasing a home is the biggest investment most people make in their lifetime. In order to secure that investment, most people take out a mortgage or a loan to pay for the home. There is a lot to know about mortgages, so it is important to take the appropriate precautions before applying for a mortgage loan.
Lender members of the Greater Lansing Association of REALTORS® contributed their expert advice on some of the biggest mistakes they see consumers make during this vital process.
No Plan
Preapproval is an essential starting point in the home buying process. Without a preapproval letter, REALTORS® will not show buyers homes. It is also important to find out how much one can be approved for so no time is wasted viewing homes outside of the buyer’s budget. Avoid disappointment by strategically planning ahead and being preapproved first and foremost.
Going Big
Just because a consumer has been approved for a $500,000 loan does not mean they need to buy a $500,000 home, nor does it mean that the buyer can actually afford the continued cost to maintain that home. Consumers should consider their other expenses and lifestyle choices to decide what they can realistically afford.
“The percent of income spent on a mortgage payment varies, but typically the payment should not exceed more than 43 percent of the homeowner’s income,” said Cyndi Garza of Union Home Mortgage Company.
Not comparing mortgage loans.
It is important that people understand there are different options with certain institutions. Get a deeper understanding from the different loan programs and what is most suitable. Interest rates and duration of the loan are important factors but the service of the lender is key to choosing the right program.
Shopping ‘Till You Drop
“A big mistake is purchasing large items while in the loan process,” said Cyndi Garza of Union Home Mortgage Company, “It adds additional debt and delays the progression. Refrain from making excessive charges on existing credit cards before and during the loan application process.”
That means even though there is a refrigerator on sale or huge deals on furniture, home buyers should refrain from shopping. Wait to purchase big ticket items until after closing on the house.
Hiding or Forgetting Information
“Open and honest communication with the loan officer is also crucial,” said Garza, “Every detail, whether it is minor or major, is important, because the loan officer monitors everything.”
A significant amount of financial information is needed for obtaining a mortgage including two years of employment, W2 forms, paystubs, employment verification and more. If a consumer cannot provide this information, a loan may not be possible.
“One of the biggest mistakes is not providing all of the documentation requested from the loan officer,” Steve Darnell of Flagstar Bank Home Lending added.
Paying off Credit
Paying off a credit card while buying a home may actually be a bad thing. Speak to the lender and discuss all financial decisions. Consumers should continue to make minimum payments but not make large payments that will deplete available cash for closing costs and living expenses.
Frequently checking credit scores
Once a bank pulls a credit score, it is valid for 120 days, so whether it goes up or down won’t have much impact on a loan. However, constantly running credit can affect the score negatively so try to avoid this hassle. This also includes opening other forms of credit like store credit cards or increasing credit limits on existing credit cards.
REALTORS® are an excellent resource for finding a lender that can work with you through the loan process. Ask a REALTOR® for lender recommendations. Costs and quality of service are important aspects in choosing a lender. Do not base a decision based solely on rates. Expect to disclose history of employment, income, assets and a credit report to a lender. Carefully consider loan products before applying. No size fits all.
Obtaining the right loan and buying a home can be confusing and time consuming. REALTOR® members and lender members of the Greater Lansing Association of REALTORS® can help consumers work through all facets of the transaction. Find a REALTOR® or a lender at www.lansing-realestate.com