5 Mistakes to Avoid When Choosing a Home Loan

Buying your first house is an exciting yet terrifying experience. While you’ll have the opportunity to find your dream home, you’ll have to fill out a lot of paperwork, find the right mortgage, and consult with your realtor before getting there. Doing all of this on your own can be a challenge.

Due to the amount of work involved, many first-time buyers rush through the process and make a number of mistakes. Here are the 5 most common ones you should try to avoid.

1. Making Decisions That Affect Your Credit

Your credit is one of the key deciding factors in whether you get a great interest rate or a mortgage at all. It’s a good idea to tackle credit-based problems in advance by checking your credit report before shopping for a loan, so you can dispute errors to the reporting agency.

Even if you get approved for a loan, some first-time homeowners take this as an opportunity to rack up debt. Moving around money, making big purchases, or opening/closing lines of credit can kick you out of the pre-approval stage. Keep your finances stable when shopping for loans.

2. Not Shopping Around for the Best Mortgage Rate

By not shopping around or comparing home loan rates, you run the risk of leaving a lot of money on the table. When you apply for a mortgage with multiple lenders, you get a better idea of what you can afford and how loan products, closing costs, and interest rates compare. 

Be aware that lenders will try to offer you mortgages with cheap or no-cost closing fees. However, they always make up the difference by increasing the interest rate. You could always speak to someone like these Specialist Mortgage Brokers if you want a professional to find the best loan rates on your behalf.

3. Buying a More Expensive House Than You Can Afford

Lenders will often tell you the maximum amount you can borrow, but that doesn’t mean you should take their advice. If you can afford up to a $400,000 dollar home, buying a house that equals that amount will leave you no wiggle room if you fall into financial hardship.

Being “house poor” isn’t just stressful financially, but it can lead to buyer’s remorse and depression. You won’t be able to save for an emergency, take vacations, or repair your home. It’s advisable to give yourself some wiggle room, so you can keep paying your mortgage.

4. Choosing to Pass Up a Rate Lock

While filling out your loan application, you’ll often see an option to lock in your interest rate. Mortgage rate locks can vary from 7 to 90 days. It’s a bad idea to pass this option up because you may end up paying thousands more for your mortgage over your home’s lifetime. 

Floating your interest rate sounds like a good idea because you may have the chance to lock in at a lower rate. However, interest rates are more likely to rise than fall, so it’s better to lock in when you have the chance. If your rate lock expires before you buy a house, you can extend it.

5. Not Comparing Loan Estimates to Closing Disclosure

A word of advice: read every single contract the bank gives you. Your lenders are required by law to provide you with a closing disclosure three business days before your closing date. This document outlines what you’ll pay at closing, and sometimes, these rates won’t match up.

Yes, some lenders will charge you extra fees in hopes you won’t read the document. However, not every fee hike is malicious. If you find a discrepancy between your loan estimate and closing disclosure, speak to your lender before you sign, so they can resolve any issue at closing.