Not Shopping Around for the Best Mortgage Rate

According to surveys done by Zillow and the Consumer Financial Protection Bureau, up to 50% of home buyers don’t shop around for the best mortgage rate.  Even if you have a bank you love, shopping around can give you a bargaining tool to see if your bank will match a better loan given by a competitor.

Not Understanding Lending Terms

Before speaking with a lender, make sure you understand common mortgage terminology. For instance, a bank may prequalify you for a loan, but the financing is not a done deal. For instance if you are trying to purchase home in Destin Florida by the beach using a local lender will benefit you. There are special terms that mortgage companies need to follow when homes are in areas near the ocean, mountains, and other potentially high risk areas. If you have, or are currently, serving in the military, you may qualify for a VA loan.  FHA loans are available to people with low credit scores or down payments, not just first time home buyers.

Mortgage Shopping Over a Long Period of Time.

Every time a lender checks your credit score, it counts as a hard pull.  These affect your credit score because often people who are shopping for credit are those who aren’t as likely to be good credit risks.  If you are shopping for a good mortgage rate, do it in a short window of time. That way all of the hard pulls will be counted as one because the credit bureau will recognize you are mortgage shopping.  Depending on the bureau, you have 14-45 days to find your loan.

Failing to Clean Up Your Credit Cards.

When you’re buying a home, your credit score becomes really important.  If you’re looking to buy a new home, pay off as much of your credit card debt as possible, but don’t cancel the cards.  The amount of credit card debt as a percentage of the amount of credit you have is an important factor in determining your credit score. Make sure you pay your cards on time as well.  Up to 35% of your credit score is determined by your consistency in paying your bills on time.

Relying on What Worked for Friends or Family

Buying a home is a personal process.  Your friends and family may know you well enough to recommend a great restaurant, but chances are, you all have different financial situations.  What worked well for one person, may not be the best choice for you. To get an idea of what mortgage may be best for you, check out the chart at https://www.zillow.com/mortgage-rates/.

Buying a Home You Really Can’t Afford

When you find your dream home, it can be tempting to look at the monthly payment and decide it’s doable. Before you sign on the dotted line, though, consider the cost of maintenance and your lifestyle.  You should plan on spending 1-2% of the cost of your home on home maintenance each year. Experts recommend not spending more than 28% of your pretax income on housing. Breaking this recommendation will leave you house poor, and unable to enjoy luxuries like vacations or a weekly massage.

Purchasing a home is a big deal.  Take time to do your research, and you’ll end up in a home you love that you know you can afford.