What Not to Do with A Mortgage
Oct.21, 2010 in
Mortgages
Whether rates are high or low, whether it’s a buyer’s or a seller’s market, mortgage borrowers make the same mistakes over and over again. The lucky ones don’t suffer any consequences. Others endure hardships varying from having to brown-bag it every day at work because money is so tight, to losing the house to foreclosure. The following are common mistakes mortgage borrowers often make:
- Shopping for a house before shopping for a mortgage. The danger with doing it backward – house-hunting, then shopping for a mortgage – is that people find the house of their dreams and then find out they can’t afford it. And after that they can never be satisfied. Get preapproved for a mortgage instead of merely getting prequalified. The difference? When you are preapproved, the lender scrutinizes your credit history and determines whether you are an excellent, good, fair or poor credit risk – and what kind of interest rate you will qualify for. Riskier borrowers pay higher interest rates and, consequently, can afford less house.
- Diving into the unknown for the loan. If you don’t know anything about the mortgage lender’s or broker’s reputation, how can you feel confident that you’re being treated fairly? If you don’t shop around, how can you know that you got a good deal? A lot of people choose their lender through a real estate agent. That’s fine in a lot of cases, but talk to at least one lender who isn’t beholden to the real estate agent.
- Borrowing too much. The most common mistake that first-time home buyers make is not having a clear sense of what their true budget needs are going to be for the maintenance of their home, their household living, and seeing how much it is going to add up to. What are your plans for the yard and the pool? Do you want to buy new plants and trees? Hire a landscaper? Buy a lawn mower? Clean the pool yourself or pay someone to do it? Keep in mind such things as annual carpet cleaning, window cleaning, a furnace checkup, and so on. Every homeowner needs to have three to four months’ of emergency living expenses set aside.
- Not asking the right questions. The absolute most important first question you should always ask is what type of mortgage the lender is pushing on you. About one-third of borrowers are getting adjustable-rate mortgages. A big chunk of those consists of interest-only loans. Those mortgages are right for some people and wrong for others. You can’t know what’s best for you if you don’t comprehend the details. If you don’t understand the way your mortgage payment can fluctuate and change, or the index and margin, it’s not the type of mortgage for you.
A mortgage is a tool that allows you to buy a home. There’s nothing wrong with a mortgage in itself. It’s how you look at it and how you use it, rather than letting it use you.
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