All Varsity buyers need a mortgage if they don’t plan on buying with cash. For this reason, mortgages are extremely important to the home buying process, so it’s extremely important to do everything correctly. However, there are a lot of mistakes that are easy to make while applying for a mortgage or trying to purchase a home with a mortgage. Here are some of the common mistakes home buyers make regarding mortgages and how they can be avoided.
Getting Pre-Qualified, Not Pre-Approved
The first step to buying a new home is to get pre-approved for a mortgage. However, the first step to getting pre-approved for a mortgage is to get pre-qualified. Unfortunately, the names of these steps are quite similar, and that similarity often leads to buyers being confused, as the terms seem interchangeable. The biggest difference between applying for pre-qualification and applying for pre-approval is how in-depth the background check is. When applying for pre-approval, a lender will go through the applicant’s past credit history to decide if they should be allowed a loan. However, with pre-qualification, there is no background check, and the only information is provided by the applicant and may or may not be completely correct.
When applying for pre-approval for a loan, buyers need to be sure they’re applying for pre-approval and not pre-qualification.
Going House Hunting Without Getting Pre-Approved
Going house hunting is the most exciting part of the home-buying process, so it’s no wonder everyone wants to get to it as fast as possible. However, buyers shouldn’t jump right into trying to find their next home. If they find the perfect home, they won’t be prepared to make an offer, and their chances of getting the home will be reduced. And on top of that, there’s no guarantee they’ll get a mortgage at all. For these reasons, all buyers need to get pre-approved for their loan before they start house hunting.
Getting pre-approved also grants buyers physical proof that they’re approved to borrow money and have a lender in place. This can make an offer more appealing for the seller, so it’s doubly important to get pre-approved.
Going With the First Lender
Without a lender, it’s impossible to get a mortgage. There are many different banks and independent lenders who are ready and willing to lend home buyers money to purchase their new home, and all have different stipulations. Because of this, buyers shouldn’t just go with the first lender they find on Google. It’s impossible to know if a buyer is getting a good deal or not if they have nothing to compare to. Before selecting a lender, do research to ensure every offer is competitive. This will help the buyer save money in the long run.
Assuming 20% Down Is the Only Option
When purchasing a home, many home buyers assume they need to put 20% down. However, buyers can actually purchase a home with as little as 5% down. Choosing to put 5% down instead of 20% does have some drawbacks, though. Having a lower down payment will cause the loan to have higher interest rates, which means the buyer will end up paying more in the long run. However, a lower down payment can make homeownership more accessible to more people, so it can be a fair tradeoff.
It’s important for all home buyers to know how mortgages work and what they need to avoid to help ensure that everything goes smoothly for them. Understanding these mistakes can help buyers do just that.