You may need a mortgage when buying a house, but you also need to understand the basics and avoid some common mistakes made when getting a mortgage. To do this, you need to do your research and plan in advance as these mistakes can cost you. Knowing the common mistakes helps you to avoid making them, enabling you to get a loan at lower rates.
Not checking your credit score
Do not wait to file your application; instead, do it as soon as you have done a credit check. Also, check your credit report once a year and plan in advance when you want to buy a house. A low credit score will result in high interest rates. Your credit score may be good, but you need to work on improving it to get low-interest mortgage loans. The rates and qualifications for a mortgage will depend on your credit rating, and if your credit score is low when you apply, you will face a higher interest rate.
Making late payments toward rent
Paying your rent late is a common mistake made when getting a mortgage as it may harm your credit score and lower your chances of getting a low-interest loan. A missed or late payment toward rent, or any other bill for that matter, does harm to your credit score and prevents you from getting a mortgage at a lower rate of interest. A mortgage application requires the lender to check the potential borrower’s credit history for the last 2 years, so late bill and rent payments result in you being labeled as an unreliable borrower.
Splurging and incurring debt through expensive purchases
Buying expensive things right before filing an application is one of the most common mistakes made when getting a mortgage. A mortgage application considers your debt to income ratio, which refers to the amount of your income that goes toward repaying debt. The more repayments you make from your income, the less you will have to contribute toward mortgage repayment, which also points to you being an unreliable borrower.
Not researching and comparing lenders
Accepting the first quote is another common mistake made when getting a mortgage. Lenders have the authority to be flexible with the rates and fees they can offer, so any lender can offer you lower rates. To get a low interest rate, you need to talk to as many lenders as possible and choose the best deal out of all.
Applying after choosing a home to buy
Filing a mortgage application late points to the fact that you have already decided which house you want to buy. You do not know how much mortgage you can afford until you have a pre-approved mortgage, so ensure that you apply before deciding on a house to buy. Debts can reduce your ability to buy a house, and without a pre-approval, you cannot afford to buy the home you had chosen.