Most home buyers make several common financial mistakes when it comes to financing their new house. These mistakes reduce their borrowing power and may even get them denied a mortgage. While they may have saved for a down payment, most buyers are too preoccupied with getting in the door to think about the little details that could trip them up. According to Michele Harrington, COO of First Team Real Estate, and Khari Washington, a broker at 1 st United Realty & Mortgage, these mistakes can cost you thousands of dollars and prevent you from owning your dream house.
Avoiding focusing solely on the interest rate when comparing mortgage lenders
A common mistake when comparing mortgage lenders is focusing exclusively on the interest rate. While low-interest rates are important, they are not necessarily the best deal. You need to weigh the costs and points offered by each lender, including the fees and points, to choose the right home loan. By focusing on the total cost of the loan, you can save yourself thousands of dollars over the life of the loan.
Avoiding depositing cash into your bank account
When applying for a mortgage, one of the most common mistakes that people make is to deposit cash into their bank accounts. Usually, banks are against this practice, as it makes the account untrustworthy. However, there are some exceptions, such as mortgage lenders who may be more lenient. This article will explain how to avoid making such a mistake and the best way to avoid it.
Before you buy a home, make sure to check whether you can qualify for a mortgage with cash. Although you may not be prohibited from doing so, you should make sure you’re prepared to show documentation to show that you’ve saved the money you’ll need for the down payment. While you can use cash to purchase a home, you may be better off using it for other purposes, such as an earnest money payment, option fee, or down payment.
Avoiding “junk fees” on mortgages
To avoid being charged unnecessary fees, you must understand your mortgage contract in detail. Do not let your mortgage broker trick you into making payments immediately or by phone. Many times, these “junk fees” are not necessary and can actually cost you more money in the long run. If you are unsure of something, ask the mortgage broker if the fees can be waived. Service charges, also known as speedy or pay-to-play fees, are another type of unnecessary fee.
Various types of mortgage fees are charged to process your loans, such as application and processing. Some banks label these fees as convenience fees or processing fees. Many consumers say that banks intentionally confuse consumers by referring to them as “convenience fees.” Regardless of the term used, these fees are not required and may not cover the actual costs involved in processing your loan. Many lenders, however, include a clause in their contracts that allows them to pass on processing costs.
Avoiding opening up new credit lines
If you’re buying a house, you may be tempted to open a store credit account before you move in. However, this can negatively impact your FICO score, as it appears as new debt on your DTI. Opening a store account when buying a home may prevent you from qualifying for a loan. Keeping this in mind is an important aspect of buying a home.
Avoiding co-signing a loan
While it is tempting to use your friends or family as co-signers to lower the mortgage loan, that’s a risky move. Not only is it risky financially, but it also puts your credit in jeopardy. If the loan goes unpaid, you will be responsible for paying it, which can have devastating consequences. It may be worth it to front some cash upfront so you won’t have to deal with the stress of qualifying.
One of the primary disadvantages of co-signing is the risk of losing your home if the primary borrower defaults on the loan. While it’s unlikely to happen, the lender can come after you and sue you. The risk is less if your credit score is high, but it’s still a risk. Remember, your co-signer’s responsibility extends beyond the loan amount.
Protecting your credit score
Mortgage lenders check credit scores to determine your eligibility. A good score will indicate your ability to pay your bills, so mistakes here can hurt your chances of getting a mortgage. Keeping a few credit card accounts open is a good idea if you’re looking to improve your score. However, if you’ve recently canceled a card, this can hurt your score. In addition, keeping a few credit card accounts open will help your score.
