A mortgage is the largest debt that you take on in your life. It is important to be careful while taking it out to avoid facing any unpleasant effects. You can get a mortgage from a bank or a lender, but it is not easy to get the nod.
A standard mortgage may last for at least 10 years. While lending money for such a long period of time, a lender will certainly look over various factors to determine your eligibility. At the time of taking out a mortgage, you cannot afford to make a mistake.
“Borrowing more money than your affordability will not only take a toll on your credit score, but it will also result in repossession of your house.”
Determining The Mortgage Mistakes
Here are some of the mistakes that you should avoid:
- Not checking your credit score
One of the biggest mistakes that you commit while taking out a mortgage is that you do not check your credit score. A lender would check your credit report to see your previous defaults and missed payments. In case of a poor credit rating, you will be declined for a mortgage, and if so, the interest rates will be higher. Further, you will be asked to put down a higher deposit.
But this is not the only reason why you should check your credit score once before applying for a mortgage. Hard inquiries will pull your credit points and they will make it more complicated for you to reapply for a mortgage next time.
- Overestimating your affordability
It is unsurprising to see home buyers overestimating how much they can afford. You will likely be approved for less than what you had expected or told during pre-approval. You should always be ready to face a drop in the value you will get signed off on.
You should have some money readily available to pay upfront for your house. Mortgage experts recommend not forgetting HOA fees and other maintenance fees.
- Not doing research
“Finding the best mortgage deal takes a lot of time and it involves a lot of research.”
You often clinch the deal for the first mortgage you find. Do not forget that interest rates may vary by lenders. You should approach different lenders with an Agreement in principle to get quotes. Compare interest rates and associated fees, then pick the deal that best suits your financial needs.
The actual interest rates and fees will be slightly higher as they will be offered after an affordability check. The research will help you pick the best deal.
- Restricting on the amount of down payment
You need 5% of the purchase price of the property as a down payment to get approval for a mortgage. However, in most cases, it is 10%. Although you can get approval from a mortgage lender at competitive interest rates despite a smaller deposit, you should always try to arrange a larger down payment.
A high loan-to-value will increase the cost of the mortgage. A lower deposit may cause panic at the time of buying a house when your lender approves less than 90% of the purchase price.
- Not considering the ownership cost
You often consider the purchase price of the house only, but you fail to consider the associated cost. It includes repair and replacement, flooring, painting, and fixing roofs. These all add up the cost quickly. This may hamper your budget if you do not take it into account. And then you will find it a bit tougher to pay down your mortgage.
- Having outstanding loans
At the time of taking out a mortgage, you should ensure that you do not have any outstanding dues. For instance, having unsecured bad credit loans from direct lenders when taking out a mortgage may call your affordability into question.
- Not planning for the future finances
Another big mistake homebuyers make is that they do not plan for future finances. A mortgage will last for 10, 20 or 30 years. You should ensure that you will be able to stick to payments even if you come across an emergency. Keep stashing away money. And if you still need to borrow, you can always take out urgent doorstep loans.
- Not having an agreement in principle
No property vendor will take you seriously if you do not have an agreement in principle. This indicates a sum of money that a lender is ready to offer. This agreement makes the vendor believe you are serious about a property purchase.
- Having no stability in a job
A lender would like to see your tenure at the current job. “You are more likely to get approval when you have been in the company for a long period of time.” If you keep switching jobs frequently, your lender will be doubtful about your financial condition.
A lender will see stability in your previous companies as well. Just showing stability in your current company might not be enough to convince the lender.
- Not going through the mortgage agreement
Read all terms and conditions of the agreement carefully so you do not end up ruing the day. Read the fine print carefully. Ask the lender if you are unable to understand the meaning of a few terms. You have a cooling-off period of 14 days. Make sure you carefully analyse your decision.
The bottom line
Buying a mortgage is not a cinch. It involves a lot of research. This is the largest debt that you must be careful while taking it out. There are several mistakes that you often commit at the time of taking out a mortgage, but you should try to avoid them so you can get the best deal.
If you are unable to make the right choice, you should consult an expert. They will carefully analyse your financial condition and a credit report to give you some essential tips. Their suggestions can help you get the best mortgage deal for your budget.