1) Not Pulling A Credit Report
The very first thing that you should do when you decide to apply for a mortgage loan is pull your credit. This is for a number of reasons and since pulling your credit is so easy these days. there is no reason not to do it.
The first reason to pull that credit report is that you need to know what to expect. You might think that your credit is good enough to purchase a home, but what if it isn’t? Wouldn’t you be crushed to find out that a home is not even a possibility? Pulling your credit now will help ensure that you are truly ready to make a home purchase and that you are not putting the cart before the horse.
Another reason to pull your credit is to look for quick and easy areas of improvement. Your score might be good enough to qualify for a loan, but adding a few extra points to your score could get you a much better rate. Pull your credit and look at your debt to income ratio, credit utilization, etc. Look for easy ways that you could make improvements. Will these improvements add to your credit score over night? No, but since finding and closing on a home can take months, you may have time to reap the benefits.
2) Maxing Out Your Loan
Just because you are approved for a 400,000 dollar home does not mean that you should purchase a 400,000 dollar home. Remember that you are being given a maximum loan rate for what a bank feels you can afford. This does not take into account your normal lifestyle.
Having a great house is wonderful, but you also have to be able to enjoy life. You want extra money to go out for dinner, furnish your home and save for retirement. If you spend every penny of available money on your home, you might just find yourself “home broke” and that can make your life miserable.
Instead of maxing out your loan, come up with a monthly payment that you can reasonably afford and then let that decide your purchase price. Stick to this price and do not let your home price creep up.
3) Failing To Lock Your Rate
Locking in your rate can help you avoid surprises and make the entire mortgage process less stressful.
When you get qualified, you will take the rate given and the monthly payment you decided on to determine a maximum purchase price. This is an amount that you know you can comfortably afford as long as interest does not go up. If you fail to lock in your rate, it could increase and you could be left with a payment that you can no longer comfortably manage.
But what if rates come down? If rates do happen to fall after you lock in your rate, you can ask your lender about a “float down”. It will cost you a fee, but it could allow you to benefit from falling rates.
While locking your rate comes with some manner of risk, it will probably be worthwhile in order to avoid painful surprises and to make the closing period less stressful.
4) Not Having Enough Money Down
It is not really to have just the right amount of money to buy a home. If you try to purchase a home on a shoestring budget, you are bound to have issues along the way. Besides the down payment, you will need money to pay for an appraisal, property inspection and closing costs. In addition, if you end up passing on a home after inspection, you will not get that money back and you might have to have multiple properties appraised and inspected.
Take the amount of money that you expect to need to pay for your new home and then add at least 2000 dollars more to cover the expenses you may not have thought of.