Whether you buy homes in Scottsdale, AZ or condos for sale in Phoenix, AZ, the essential step is getting your financials in order. There many questions concerning mortgages and their process, but one subject that is rarely discussed are the common mortgage mistakes that are conducted. As we speak, someone is creating a blunder that's likely costing his/her chance to purchase a home.
When you buy homes in Arizona, it's important that you know the common mortgage mistakes so you can steer clear of them as possible. Making just one mortgage mistake can ruin your opportunity of getting a loan. Below, you'll find 15 mortgage mistakes that you need to avoid when purchasing a home.
Neglecting To Assess Your Credit Score
When you decide to buy a home, the first thing that you need to do is assess your credit reports and credit score. It's important that you know this information so you know what to assume when you begin the process. Also, you can spot the errors in your credit report at this early stage and do something to improve your dismal credit score.
If you're a couple buying a house, use the income of the individual who has a higher credit score to apply for a mortgage underwriting. In some cases, lenders use the lower score to base your interest rate. Either way, try to consider this factor at the start of the process.
Another common mortgage mistake that many potential home buyers often do is to get pre-qualified instead of getting pre-approved. Not getting a pre-approved is a big no-no when purchasing a house. What makes a mortgage pre-qualification different from a mortgage pre-approval?
A mortgage pre-qualification relies on the information given by the potential borrower. The lender doesn't do any research making the pre-qualification lacking in credibility. This makes it only as good as the paper that it's written on.
On the other, a mortgage pre-approval shows more credibility because it's only issued after a lender reviews a buyer's credit reports and other financial data. Any top realtor will ask for a mortgage pre-approval before presenting the house since it highly increases the chances of a buyer to secure the payment.
Getting A Single Mortgage Quote
It's not smart to get a single mortgage quote if you want to get the best deal. As much as possible, get multiple quotes from various lenders. You can consult with your local bank, credit union, and other financial institutions.
Typically, credit unions provide the best mortgage rates but it depends on your circumstances. Keep in mind that your file will be dinged every time your lender access your credit to offer you a quote. To protect your credit score, get all quotes with a 2-week period so it doesn't show that you're applying for various loans from several lenders each time.
Thinking That All Mortgage Products And Lender Rates Are Similar
Many home buyers think that all mortgage products, lender rates, and terms are similar. The truth is, they're not. When purchasing a home, you need to decide which form of mortgage suits your situation the best.
The different types of mortgage products that lenders usually offer are conventional, FHA, adjustable rate, or fixed rate. Each of these mortgage product provides different rates and terms. When shopping for the best house financing deal, ask your potential lenders about the type of mortgages they offer, the present rates for every mortgage product, and the costs linked to every mortgage product.
You shouldn't be afraid to ask these questions because it can say a lot of the lender that you like. If you don't know that there's a contrast between mortgage products, lender rates, and terms, then you lose the chance of landing a good deal.
Not Negotiating Junk Fees
If you want to get the best mortgage rate, learn how to negotiate junk fees. You may not be able to refuse them entirely, but negotiating them is something you should attempt to do. Several junk fees that you should watch out for include sign-up fee, application fee, and broker fee.
The key is learning what to expect when faced with different junk fees. The average cost of mortgage and processing fees is somewhere between $200-$500. If the lender charges more than $500, ask about it, and if the lender can't explain directly, then it's time to look for another.
You can also catch the junk fees beforehand by looking at the fees listed on the Good Faith Estimate (GFE). The GFLE is only an estimate so you have the chance to shave it down. Surprisingly, lenders are amenable to minimize the fees if you ask nicely.
Making Too Much Debt
If you want to get approved for a mortgage, avoid adding too much debt. Additional debts will only mess your debt-to-income (DTI) ratios, which eventually can lead to a mortgage rejection. Normally, lenders like to see a DTI that's lower than 40%. Other programs also approve a 45% DTI on separate occasions.
To get the figure of your DTI, divide your total debt by your gross monthly income. If it's more than 45% you need to reduce it down to qualify for a mortgage. To know the maximum debt you can have, multiply 0.45 by your gross income per month.
The best way to lower your DTI is to get more income or pay your credit card debt. You may consider getting a second job to accomplish this.
Putting Nothing Down
You'll be faced with potential problems if you're putting a little to nothing down- say 4% with a conventional loan or 3% with an FHA loan. A private mortgage insurance (PMI) is needed by these loans. PMI usually costs between $20 to $250 monthly for every $100,000 borrowed. Conventional loans allow you to drop the PMI, provided that you make a down payment somewhere between 5% to 20%.
If you put less than 20% of down payment, you'll likely have to purchase mortgage insurance, which means an additional cost on top of your mortgage payment. FHA loans, on the other hand, need mortgage insurance until the loan is paid fully.
Missing The Rate Lock
When you complete a mortgage application, you'll have to decide whether to lock the mortgage rate or not. What you should avoid is to skip the rate lock. The mortgage rate lock allows you to secure the present mortgage rate for a specified period of time- typically from 7 days to 90 days.
If you miss locking the rate, you put yourself vulnerable to any rate increase. For instance, if you agree on a lock rate of 3% and the rate suddenly increase to 4% the next week, you end up paying the higher rate.
You do have the option to extend the rate lock if it's expiring and no closing date is set. There's actually a cost in extending the rate lock and it may differ from lender to lender. If the delay is only for a few days, lenders usually extend the rate lock without any cost.
Shopping For Homeowners Insurance Until The Last Minute
Don't wait to shop for the best homeowners insurance until the last minute. You need to shop around and compare rates. Just like interest rates, homeowner insurance rates can vary from one provider to another.
Homeowners insurance is a prerequisite for any buyer that's paying for their house purchase. For this reason, you need to shop around early in the mortgage process. If you do it late, you'll end up delaying your own closing because the loan won't be financed until the said insurance is bought and paid for.
Ignoring The Overall Costs Of Owning A House
The monthly mortgage isn't the only concern that you need to consider when owning a house. You need to consider other related costs such as utilities, potential repairs, and personal expenses. Many mortgage companies don't inform you about these additional costs.
If you depend on a bank to establish your price range, then you'll most likely end up buying a house that's on top of your budget. Banks base your qualification on your gross income. They don't consider other monthly costs, such as car loans and credit cards.
Home buyers who fail to consider the costs of owning a home often end up in a weak position in the coming years. You want portion 1/3 of your monthly income on housing expenses, which include mortgage fees, insurance charges, and homeowners association expenses.
Irregular Employment History
When you apply for a home loan, mortgage companies also look at your employment history. A buyer with an irregular job history or had multiple jobs over the past few years may have a hard time getting approved. Unless the jobs are related, then you can have multiple jobs in your employment history.
Having an inconsistent job history is another mortgage mistake that you should avoid. If you want to get approved for a home loan, make sure that you have a stable job beforehand.
Signing Without Understanding
By this time, you already know your monthly fees and the mortgage interest rate. You need to see these terms in writing. Before you sign the document, you need to understand the terms.
Even if the person looks credible, don't just take his/her word for it. Read the document and ask if there are any terms that you don't understand. You can ask your lawyer to review the loan terms with you. Do this ahead of time so you can sign the contract without any problems.
Not Finding The Right House
Of course, your home loan will be put to waste if you're going to spend it on a bad house at the end. You should shop around at a lot of homes. You can search online and search the listings for available foreclosure homes in Phoenix, AZ.
When you're thinking of buying the house, get a feel for its neighborhood first. Does it have the amenities that you like? Is it close to stores and schools? Do this research so you won't regret your home purchase.
Assuming That The Loan Is Final
While the closing isn't made yet, don't act like the house purchase is a done deal. Don't resign from your job because the lenders will verify if you have at least two years of consistent employment before closing.
Avoid opening new credit cards, apply for new loans, or use more than one credit line. If you have too much debt, you won't be able to take a higher loan amount. You shouldn't even overspend your cash because lenders want you to have sufficient savings in times of contingency.
Not Using A Local Realtor
If you seek help from a real estate agent, make sure that he or she is a local of the area. A local real estate agent has the best knowledge about mortgage in your area. So if you're living in Phoenix, Arizona, don't choose a Penfield NY realtor. Why?
It's simple. A real estate agent living on the other side of the US can't offer quality real estate advice to a buyer living in a different state. There are many ways to find the best realtors in your area. One way is to ask referrals from your friends and family.
AZ Deal Hunters work closely with mortgage brokers and can help you discover new foreclosure listings in Phoenix, AZ. If you want assistance in buying a home call AZ Deal Hunters at 480-432-7049 today!.