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Home Buyers Should Avoid Making These 6 Mortgage Mistakes

Financing is the most important step of the homebuying process. After all, which real estate agent, house seller, or mortgage lender would want to do business with a buyer that has no ability to pay for a listed property?

While paying in cash for a home is often the best advice given to homebuyers, not everyone has a large sum of money ready to be taken out from the bank for a purchase. So instead, one should settle for a mortgage or a loan to afford a house.

But still, a lot of homebuyers tend to make mistakes even during the money borrowing process. These are some of the goofs you should avoid before talking to a lender, sending an offer to a seller, and buying a home.

1. Waiting until a 20% downpayment is available

As a golden rule for home buying, a 20% downpayment is the best indicator that you should apply for a conventional home loan. However, this opportunity may never come, especially nowadays where home prices and mortgage rates are rising fast. Thinking of buying a home anytime soon? Start discussing your plans with your lenders now so you can receive advice.

2. Not using a local mortgage company

Real estate local markets differ from one another. Each has its own local mortgage companies that are very familiar with the area. Plenty of homebuyers fail to understand this and would choose a faraway mortgage company. As a result, the mortgage company of the buyer’s choice won’t be able to provide quality service and would cause buyers to end up paying more.

3. Not checking your credit

One of the things mortgage companies look into before approving you for a loan is your credit score. Make sure that you and your partner (if you have one) have no history of bad debt, late bills, or debt collection. Because if you don’t, you’ll end up getting surprised by a loan denied stamp. Before buying a home, check your credit report first and get your finances in order.

4. Closing credit cards

Plenty of homebuyers cancel their credit card accounts once their debts start to cause financial problems. While this may be a route to divert payment, it will still affect credit scores negatively. So if you think you can get away with closing your accounts to trick mortgage lenders, you won’t. As I said, get your finances in order before applying for a loan.

5. Meeting up with only one mortgage lender

In a statistic made by the Consumer Financial Protection Bureau (CFPB), close to half of the U.S. home buyers only meet with one mortgage lender for a home loan. If you’re part of this population, you could miss a lot of opportunities.

Remember, lenders vary in their offers and interest rates. By meeting more than one lender, you’ll increase your chance of getting a loan with a lower interest rate. And this could save you a lot of money in the long run.

6. Getting a mortgage pre-qualification instead of a pre-approval

A pre-qualification and pre-approval letter are two different things. The former is only a piece of paper issued by a lender without doing a lot of research on you. Whereas the latter will only be given once they have seen your credit reports, pay stubs, tax returns, and your other important financial information.

Homebuyers who only have a pre-qualification letter often end up having their offers rejected by sellers. During the home searching process, seasoned real estate agents won’t also show you a listed home without a mortgage pre-approval.

Lenders are eager to let you borrow money. But they also want you to help yourself first before coming to them. The best advice they can give is to boost your credit score by paying bills on time and not getting into too much debt.

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