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Mortgage Mistakes and Misconceptions
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Most people end up making mortgage mistakes which can prove rather costly. Some of the common mortgage mistakes people make while applying for a loan are as follows:
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- Borrowing too much money: Mortgage lenders often try to convince borrowers to overextend their loan amount. However, it is a foolish decision to extend the loan amount more than what you can afford to pay back. Homeownership is an expensive affair where the homeowner is required to shell out thousands of dollars towards property taxes, insurance premiums and property maintenance charges. Apart from balancing all these, the borrower needs to pay the monthly mortgage installment. Any increase in the outflow of money can be really stressful for you and your family.
- Not shopping around: Considering the ever-increasing competition in the real estate market, several lenders and mortgage companies are trying different ways to attract customers. Most important among these are lower interest rates, less down payment and convenient repayment terms. It is important to shop around in order to get the best possible deal. Apart from that, lenders also tend to decrease interest rates depending on the credit scores of the customer. However, borrowers with good credit record get stuck with loans meant for sub-prime borrowers, a mistake that occurs due to lack of shopping.
- Paying junk fees: It is important for a borrower to have clear idea about various costs levied by the lender on a mortgage loan. Lenders resort to this strategy with the objective of increasing their profits. A detail about these charges has to be provided by the lender in the form of a good-faith estimate of closing costs. Borrowers have the option of negotiating these charges.
- Not planning for closing costs: Closing costs can be equivalent to 2-7 percent of the sale price. This depends on the area in which the house is being sold. It is important to plan for closing costs in advance because it is the borrower who has to bear a major portion of this cost. One can have a fair idea about the closing costs by looking at the good-faith estimate provided by the lender. It is important to have sufficient cash in hand on the day of closing the deal.
- Not having enough cash in hand after closing: Once the transaction is closed, there are several other expenses that one needs to handle. Many times, people do not foresee these expenses ending up in overextending their debt. It is always important to keep some cash in hand for a rainy day. It is a good idea is to have an amount equivalent to at least three monthly mortgage payments.
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