Avoid The Headaches Associated With These Potential Oversights
Once you know the steps it takes to buy a house, the home loan process is pretty straightforward. But by making a mistake along the way, buying a house can turn into a pricey headache you didn’t anticipate. With a little planning and preparation, you can avoid these common mortgage mistakes.
- Not Budgeting
Owning a house means no longer having to pay high rental rates and worrying about yearly rate increases. However, there are other expenses that you should keep in mind before you start house hunting and sign a mortgage. Make sure you understand all of the total costs that come along with home ownership. No one wants to be “house poor” – when someone spends the majority of their income on mortgage payments and other housing expenses and can’t afford much else. Some costs to consider include:
- Down Payment – Down payment costs are different for everyone and in some cases, can be as low as 3.5%. However, the more money you’re able to use toward a down payment, the lower your interest rate will be. If you haven’t already started saving for a down payment, now is a good time to start.
- Mortgage Insurance – Typically, if you put down less than 20% of a home’s purchase price, your lender will require you to also buy mortgage insurance. This protects lenders in cases where borrowers default on their mortgage loans. Mortgage insurance rates vary, but you should tack on the monthly cost to your monthly mortgage payment.
- Repairs – When you buy a house, you’re responsible for any maintenance costs when something breaks. If your air conditioning system or water heater stops working, will you be able to afford the costs of repairs?
- Not Getting Prequalified
Getting prequalified will make the house hunting process much simpler for you and the real estate agent you work with. When you get prequalified, you receive an estimate on what type of loans you can afford. To get prequalified, you need to meet with a lender and provide information on your credit, income, assets and debts.
When you’re prequalified, you’ll save time by only looking at houses within your price range and sellers are likely to prefer your offer over a buyer who is not prequalified, giving you negotiating power.
If you’re thinking about buying, “Go see a lender immediately,” says Al Velasco, Executive Vice President of PrimeLending’s Western Division. “Understand what you need to know about qualifying for a home loan. Create a plan that will allow you to purchase a home on your desired timeline. Becoming an informed buyer before you begin the search will make the process easier and more enjoyable.”
- Not Understanding Your Loan Terms
FHA, conventional, jumbo – there are many different kinds of loans out there, and these are just a few examples of some. They all come with their own different benefits, and there are different length terms. The loans that you qualify for will depend upon the type of house you’re looking for, your budget, credit history and more. It’s important that you know the differences between the types of loans you qualify for and what the terms are.
Velasco says that it’s especially important for homebuyers not to hold onto any pre-conceived ideas when it comes to loan options and terms.
“Often, homebuyers believe they know what financing options suit them best,” he says. “Many believe a 30-year fixed-rate mortgage is the best option. They don’t realize it is often the most expensive option. We equip our loan officers with tools that allow for the creation of easy-to-understand loan options. You should consider several options… choosing the wrong loan option can result in higher costs over the life of the loan.”
- Not Locking In a Good Rate
In today’s market, there are opportunities to get extremely low interest rates, but those opportunities don’t always last long. When you’re in the initial stages of looking for a home, most lenders offer the ability to “lock in” an interest rate, which guarantees that rate for the entire lock period. At PrimeLending, you can lock in your rate for up to 180 days (additional restrictions and fees may apply for lock terms in excess of 90 days).
That way, you can continue looking for a house without worrying about whether or not your rate will increase. Additionally, PrimeLending offers a Float-Down option in case rates drop after you lock your rate. There’s a fee attached to this option, but it can be a good idea if you plan to get prequalified and not make a purchase right away.
Velasco adds that it’s important to communicate with your loan officer throughout the mortgage process.
“Ask many questions and don’t be shy about repeating questions,” he says. “The loan process can be confusing, and there is no such thing as a dumb question. The average homeowner will finance 2 to 3 homes in a lifetime. You are not supposed to be an expert.”
At PrimeLending, we offer a variety of home loan options for all kinds of budgets. Contact your home loan expert today to get started.
From the PrimeLending blog by Sarah Crandall.