Getting the best mortgage loan you can is important because you'll be living with the terms of your mortgage for a long time. Avoiding some common mistakes during the loan shopping process can help ensure that you end up with an interest rate that you can live with and payments that are within your price range. Take a look at a few of the top mistakes that people make when shopping for a mortgage and how you can avoid them.
Opening or Closing Credit Accounts
On the surface, it might make sense to either open a credit account or close one while you're shopping for a mortgage loan. You might want a new credit card to pay for home furnishings or other items for your new home, or you might feel tempted to close out cards that you feel you no longer really need when you're taking on a new, large home loan. However, neither move is a good choice.
When you open a new credit card account or another line of credit, the company will do a credit check, and the inquiry will negatively affect your credit score temporarily. This could result in you not being qualified for a lower interest rate that you might have qualified for without that inquiry. And while closing old credit accounts may seem like a good choice, this will reduce the amount of credit you have available, which also negatively impacts your credit score. Your best bet is to leave your existing accounts alone for the time being.
Not Seeking Pre-Approval
You don't want to end up with your heart set on a house that you really can't afford. You also don't want a seller to pass on your offer because they have another buyer who seems more serious. Luckily, there's a fairly simple way to avoid these scenarios—seek out mortgage loan pre-approval before you start shopping for a house.
Applying for pre-approval is much like applying for regular approval, and it can make the process easier when you are ready to make an offer on a house. Pre-approval will give you a loan amount and interest rate, so you can focus your search on houses that are in your price range. Pre-approval also lets the buyer know that you're serious and that you can actually get a loan, which ups your chances of having your offer accepted.
Signing Loan Documents Without Fully Understanding Them
Mortgage loans can be much more complicated than other loans or credit offers that you've accepted in the past. Do you understand what an adjustable rate means for your monthly payments? Do you know how much closing costs are and what's included in those costs?
There's no shame in not understanding all of the complicated language in a mortgage loan document immediately. It's a complex document. Ask lots of questions, and don't be afraid to hire a professional, like a real estate attorney, if you don't feel certain that you can determine whether the loan terms are in your best interests. It's a lot better to ask questions now than to be surprised with payments that you can't handle later.
For many people, a mortgage is the biggest financial deal they'll ever make. It only makes sense to use strategies that will get you the most favorable terms possible. Take your time and avoid mistakes that could end up costing you money. Contact a lender to learn more about mortgage loans.