When you set out to purchase real estate, you also have to apply for mortgage. Applying for a mortgage is not a simple endeavour. It is a very complex, complicated, and time-consuming process. It is also one of the most important financial decisions you will have to make.
A mortgage is a form of house financing wherein your new home functions as the collateral. The lender will provide you a huge sum of money which is usually around 80% of the total value of the house. You must pay back this amount with interest through instalments over a period of time, usually within 15 to 30 years. If you fail to pay the amount, the lender can put your house for auction. Since getting a mortgage is a huge investment, you need to be careful in signing any agreement terms. This article will discuss the common mortgage mistakes that might cost you thousands of dollars.
1. Failure To Prepare Your Finances
Failing to prepare your finances can lead to costly mistakes. As a tip, before you consider looking into houses, you must first know your current financial status. Make sure that your finances are looking good. When you know your financial position, you will know what you can afford. To prepare your finances, you should:
- Get an precise evaluation of your financial position. You must prepare your income statement as well as your assets and liabilities list.
- Make sure that your finances look good. You must take the time to pay off any debt and remove as much liabilities as possible to improve your financial position.
- Prepare all the necessary financial documents.
- Get the latest statement of your credit report.
2. Not Checking Your Credit Score
Another mistake that a lot of homebuyers make is failing to check and repair their credit score. Before you apply for home financing, you must know your credit score because a bad score can increase your interest rate or it can lead to denial of application.
For this reason, you need to get a statement of your credit report and FICO credit score at least 6 months before you apply for a loan. In doing so, you will have enough time to correct any errors and improve your rating.
3. Not Getting Pre-Approved
Pre-approval and pre-qualification is not the same. Pre-approval is much more significant because the lender will need to check your credit, look at your income, assets, and your employment history. They will go through all the process of a full-approval except for appraising the property and title search. If your financial position looks good, they can approve your loan in writing. This can provide you with an assurance that if you ever go through with a home purchase, you will qualify for a loan.
These three are the most common mortgage mistakes that homebuyers make. It is best to take care of all your finances and credit records before you start applying for a mortgage. In doing so, you won't encounter huge problems along the way.