3 Common Mortgage Mistakes You Can’t Afford to Make
Buying a home is likely the largest purchase you’ll ever make - get the facts before you commit
A recent survey conducted by Freeandclear found that almost half of borrowers said they had regrets about how they handled the mortgage process, with 32 percent finding it overly complicated and stressful.
Here are 3 mistakes to look out for - so you can end up with a home you love, at a price you can afford.
Mistake #1: Not comparing quotes
No matter where you are in the loan process, it pays to compare.
According to a report by the Consumer Financial Protection Bureau, comparing rates from just three lenders can save the average American around $3,500 within the first five years of the loan.
Yet 47% of borrowers don’t compare lenders.
How to solve this:
In the old mortgage model, shopping around for mortgages was too time consuming and the process too intimidating for the average borrower to dive into.
In the past few years, thanks to better technology and an evolving loan model, that’s all changed.
Heading online for a mortgage is now common practice. Mortgage marketplaces - like LendingTree - have introduced convenience and transparency to the lending process – allowing potential homeowners to
apply in minutes, compare rates at a glance, shop around with ease and most importantly, save money.
Even a tiny percentage in loan rates can mean thousands of dollars in savings over the lifetime of the loan.
Mistake #2: Focusing only on the interest rate - and ignoring the APR
Many borrowers make the mistake of focusing solely on the differences in interest rates.
The interest rate alone does not offer a full picture of how much you’ll be paying for your mortgage. Some lenders advertise deceptively low interest rates, making up for the difference with high fees.
To get a full picture you need to compare APRs (Annual Percentage Rates) which include other fees such as origination fees, discount points, and lender fees. This number shows the loan’s true cost.
For example, A $100,000 30-year fixed-rate loan with an interest rate of 3.85%, where the lender charges two points, a 1% origination fee and $1,500 in other closing costs, has a 4.215% APR.
The same loan at 4.05%, with no points, a 1% origination fee and $800 in other closing costs, has a 4.199% APR.
The first loan might look cheaper because of its lower interest rate, but it will end up costing you more in the long run and requires you to bring more cash to closing.
Mistake #3: Not checking your credit reports
Your credit score can make or break your mortgage interest rate.
Don’t make the mistake of ignoring your credit score until you’ve found your dream home.
Experts recommend pulling your credit report six months to a year before applying for a mortgage (you're entitled to one free copy of your credit report every 12 months from each of the three nationwide credit reporting companies — Equifax, Experian and TransUnion).
Look for errors on your report, or debts that have slipped through the cracks. These issues can hurt your pre approval chances, so the sooner you know about them the better.
Some effective ways to boost your credit:
Make all bill and loan payments on time, pay off balances to below 30 percent of your maximum credit lines, avoid large credit purchases.
So What Now?
It bears repeating - buying a house is a big decision, and one that should be made wisely.
Consider your income, your expenses, and your budget, and start shopping around with lenders to find the best deal for you.
And if you want to get matched with the right lender for you, answer these 5 questions.