I’ve included below some of the most problems borrowers find themselves in after signing off on their home loans. The good news is that all of these mistakes can be avoided! So, don’t let these happen to you!
1) Biting off more than you can chew. This is the worst problem we see from past borrowers. Although a lender may approve you for higher loan that what you were expecting, it doesn’t mean that you should necessarily buy a home that expensive. Find out what the monthly payment will be, and compare that amount to what you currently pay for housing. Will it be a stretch to make that payment every month? It’s not worth taking the risk and having to sell the home later simply because you couldn’t afford it to being with. You don’t want to be stuck with a home that you never should have bought.
2) Opting for an adjustable rate mortgage. I think all buyers have learned from this mistake by seeing other home buyers on the news in the past year or so. Although ARMs made a little more sense back in the 1980s when rates were triple or quadruple what they are now, it’s simply better to know what your monthly payment will be for the next twenty or thirty years. Also, with the incredibly low rates we’re seeing right now, it makes sense to go ahead and lock in what may potentially be the lowest rate we see again for years.
3) Getting Mortgage life insurance. In the first few months after closing on your home, you’ll get plenty of mail telling you to get mortgage life insurance or mortgage disability insurance. Both of these kinds of policies pay your mortgage bills in the chance that you die or get disabled (and are unable to work). These policies are typically so overpriced that it’s practically a rip off. If you want to get an insurance policy to cover your mortgage, it would be better to get a general life insurance plan or disability insurance (not one specifically for a mortgage).
4) Relying on Prequalification. Many buyers confuse getting prequalified to getting preapproved. Some of these buyers learn the difference the hard way when the lender who prequalified them a month ago tells them a day before closing that they’re actually not going to be able to get the home they picked out. And, yes, this does really happen to people. Be sure to get preapproved before you make an offer on a home. Preapproval is a much more thorough and accurate process than simply getting prequalified.
5) Choosing a bad lender. Simply put, be sure that you choose a lender who will actually lend you the money when the time comes. This mistake usually ties in with the previous mistake – meaning that some lenders don’t take the necessary steps to really look into a borrower’s situation until right before closing. Be sure to ask your real estate agent for recommendations. He or she will be able to give you a short list of people you can contact who have a good history of getting their borrowers to the closing table.
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