1. Overestimating how much you can afford
You don’t want to waste your time applying for a loan you won’t qualify for or begin house hunting only to find out you’re shopping for a home that’s outside your budget.
2. Ignoring your credit
Your credit score plays a huge role in what sort of mortgage rate you’ll get, so long before you start considering a home purchase, you should sit down and take a long, hard look at your credit. Generally, you want a score of 660 or above, but the higher the better.
3. Not shopping with a purpose
Don’t make the mistake of dragging on your search when mortgage shopping. Depending on your lender, a shopping window typically ranges from 14-45 days, so it’s best to stick with a 14-day timeframe to be on the safe side.
4. Opening new credit or making large purchases
during the mortgage process
When you’re applying for a mortgage, your lender watches your finances like a hawk. If you open a new credit card or make a big purchase (like that new car you’ve been eyeing), it could send up red flags that you’re not very responsible with your money.
5. Choosing the first lender you find
Lenders don’t just differ in the loan products and rates they can offer, but they differ in service too. Do your research and learn all you can about a potential lender before selecting yours.
6. Skipping the pre-approval
The first step is to get pre-qualified to give you an idea of how large of a loan you’ll qualify for. During this step, you’ll learn about different mortgage options available so you can find the one that’s the right fit for your budget and goals.
7. Forgetting about other homeownership costs
Homeownership comes with all kinds of costs from electricity, water, and energy to repairs, maintenance, and general upkeep.
8. Ignoring the APR
A lender’s APR includes all the fees, points, closing costs, and other expenses that go into the loan, giving you much better insight into the total costs over time.
9. Scrimping on the down payment
Yes, an FHA loan will allow you to put down just 3.5 percent, but is that really the best idea in the long run? With a small down payment, you’ll have a few costly repercussions. For one, you’ll have to get private mortgage insurance that will last for some years into the loan.
10. Not checking for prepayment penalties
The loan document will also specify if there’s a penalty for paying off the loan early, along with the amount of the penalty and when it may apply. VA, FHA, and USDA loans don’t come with prepayment penalties.
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