Think of every discussion that you have with a mortgage lender as a business negotiation. You want to borrow money for the home of your dreams, and you want the best interest rate possible. The lender wants to determine the level of risk associated with loaning you money, and they want to profit as much as possible from the deal. Those goals are at odds, and that’s why the biggest pitfalls that you can make while shopping for a mortgage center on the failure to educate yourself in advance.
Neglecting to Analyze Your Background Check
You must walk into a negotiation knowing your strengths and weaknesses. This means following these steps so that you understand your financial assets and can explain any red flags that a lender will notice:
- Check your credit report with all three credit bureaus. Look for any outstanding debts, late payments for active accounts, public records and other negative marks. Dispute incorrect information, and shop for lenders willing to accept flaws that you can’t eliminate.
- Pay to see your credit scores from all three credit bureaus. Your free yearly credit report doesn’t include your score.
- Look at your tax returns and other data concerning your income. You need to know how much you earn because it will impact how much you can afford to borrow for a home.
- Consider the strength of your employment history. Lenders feel more secure lending money to someone with a stable work history than to someone who switches jobs often or has only been on the job a short period of time. Make sure that you know how long you’ve been with your current employer and have explanations for any gaps in your work history.
- Neglecting Self Education
Another pitfall is shopping for lenders without educating yourself on the home-buying process. Make sure that you understand what fees a lender can potentially charge so that you can ask about those fees when comparing lenders. Know the difference between pre-qualification and pre-acceptance. Understand all expenses involved in securing a mortgage so that you can realistically assess how much you can afford to pay each month toward your mortgage. For instance, you will have to pay for homeowner’s insurance and maintenance expenses for your new home.
Don’t assume that a lender will educate you on the process because that places too much power in their hands. If you already know the basics, you will catch on quickly if a lender isn’t giving you the best deal or is twisting the facts to get your business.
Rushing into the Process
This is the biggest pitfall you can make as a new homebuyer: rushing into the process with the wrong lender or through the process with any lender. Compare terms from multiple lenders to ensure that you’re getting the best deal, and take your time selecting a home that is worth the investment long term. You want to own a home, but you don’t want to waive inspections or skip other critical steps in the process just to speed toward your closing date.