Buying a home will be one of the most joyful, stressful, and most important events of your life.

Be careful not to let the stress of buying a home cause you to make costly mortgage mistakes.  Here are some of the most common mortgage mistakes that occur when purchasing or refinancing a home.

Top 7 Mortgage Mistakes

1) Not Shopping Around. The first mistake is not looking around for the best interest rates offered by banks, mortgage lenders and even mortgage brokers.  Do not settle by using your primary bank just because you have always kept your money there or may have other loans from them.  Shopping around is time consuming, but in the end it can amount to a difference of thousands of dollars Check the Mortgage Rate Tables on RateNerd.com to see the most current mortgage interest rates.

2) Not Checking Your Credit Report. The second common mistake is not checking your credit report before going to apply for a loan.  Whenever applying for a home, auto, or any other kind of loan it is crucial to know what is on your credit report and what your credit score is.   Negative items or credit problems will hinder you from getting the loan you think you deserve or even getting a loan at all.  The good news is that you can get your credit report and score for free from several providers – check the Credit section of RateNerd.com

3) Spending Too Much. Another common mistake is spending too much on payments you cannot afford.  Look through your bills and eliminate the ones that are not necessities and that are not more important than buying a house.  Knowing what size loan you can realistically afford can eliminate overpriced houses right off the bat.  Lastly, do not let a lender or broker continuously show you houses that are out of your set price range.  When refinancing, watch how much cash you take out or how much debt you consolidate into the loan to keep your monthly payment affordable.

4) Not Getting Pre-Approved. Mistake number four is failing to get pre-approved for the loan.  The lender will check your credit history, savings, and debt-to-income ratio and decide what size loan if any is appropriate for you.  Getting pre-approved is important for multiple reasons such as knowing your loan size; some sellers will not even listen to offers from someone who is not pre-approved; and lastly, it gives you negotiating leverage with the seller since the bank or lender has faith in you the seller should also have faith that you.

5) Taking Out a Mortgage that You Don’t Understand. The fifth mistake is taking out a loan that you don’t fully understand, such as an adjustable rate mortgage (ARM), interest-only mortgage, or a pay-option negative amortization mortgage.  ARMs will always initially have lower interest rates being offered then fixed rates.  Do not rush into taking the lower ARM if you know that the fixed rate is out of your price range.  Chances are that the ARM will go up and you will end up spending around the same amount with the ARM that you would have with the fixed rate.  Make sure you understand the worst-case scenario of what the loan could adjust to and what your payment would be at that time.

6) Getting a Mortgage with a Pre Payment Penalty. The last common mistake is signing a prepayment penalty.  The prepayment penalty does not allow you to pay off your loan earlier than you originally thought you could have.  It also does not allow borrowers to refinance or sell their homes when the interest rates are adjusting in their favor.  As of now, Congress and the Federal Reserve are deciding whether prepayment penalties should be outlawed or just restricted in a different manner.  Either way, signing a pre approved agreement is not worth the little bit money that you save off the bat by signing it.  So we say NEVER take out a loan with a prepayment penalty.

7) Taking the Loan Officer’s Word. Most loan officers are honest, but anyone can make a mistake.  As part of the application process you will receive a Good Faith Estimate (GFE) and a Truth In Lending (TIL) statement.  These documents explain what the loan is, how much the interest rate is, and what closing costs will be.  It is required by law, and these are the documents that you need to go by, not just somebody’s word.

So check the rates, clean up your credit, and find a trustworthy lender who will put your interests first.

Related posts:

1. How To Avoid Teenage Credit Mistakes With Your Kids
2. Mortgage Rates at 5.05% – What You Need To Know Before Refinancing
3. 4.92% Mortgage Rates – How To Shop For Your Home Loan
4. What To Do If You Need Help To Pay Your Mortgage
5. What’s A Good Faith Estimate (GFE) From My Mortgage Lender?

Tagged as: Credit, credit repair, credit report, credit score, Fixed Rate, home loan, Interest Rates, Mortgage

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