Arguably, the biggest threat to homeownership is not the down payment or the mortgage rate. It is oftentimes the lack of knowledge and patience on the part of would-be homebuyers to seek out not just the perfect home but the right mortgage that goes along with it. These homebuyers’ mistakes, albeit common enough, only add to the costs of homeownership, something that you should avoid at all cost.
Not Doing Some Basic Research
Buying a home is a process that can get complex especially when you get to the part of submitting bids and drawing purchase contracts. You’d be faced with choices on the onset, primarily:
- The real estate professionals you’ll be needing, mainly agents and lawyers. Real estate agents will guide you through the grittier side of buying a home and specialist lawyers will help you with the legal aspects of buying.
- The financing you’ll be required to buy the home, i.e. mortgage if you’re not a cash buyer. Having financing in place strengthens your bid for a home.
It would thus make things more streamlined for you if you have a grasp of what you are getting into and how to get there. Spend time researching about homebuying and homeownership, ask your friends and family about their own experiences, and make preliminary inquiries about loans from banks and lenders.
Not Preparing Yourself (Qualifications and Documents)
If you’re likely to finance your first home purchase, the all-important question is “Do you qualify for a mortgage?”
- Is your credit score good to merit a low rate?
- Is your income high to be able to pay the loan?
- Is your monthly debt at a level that does not exceed your gross monthly income?
These are just some “personal matters” you need to look into. You also need to gather and round up your personal financial documents to support your loan application.
If you have a not-so-good credit history or have just started building one, there is still time to work on improving it.
Not Shopping for a Mortgage
It’s good to decide what you like to see in a home or a neighborhood so it would be easier to shop for one. But, have you shopped around for mortgages to avoid mistakes when choosing one?
Qualifications aside, what mortgage will you be using?
- Fixed or adjustable rate: Fixed-rate mortgages have fixed rates that don’t change throughout the life of the loan thus their payments are about the same every month. Adjustable-rate mortgages have rates that adjust at a certain period in the loan term.
- High or low down payment: There are mortgages that require as little to zero down payments. As low down payments usually entail a private mortgage insurance (except for VA loans), you can save up for a 20% down to get rid of any PMI.
- 15 or 30 year term: This pertains to how long will you be repaying your mortgage. The standard 30-year mortgage has low monthly payments but the interest cost is high albeit unnoticeable. You can save on the interest portion of the loan with a 15-year mortgage but you have to make higher monthly payments.
More importantly, shop to get the best mortgage rate possible and available. You wouldn’t know what’s in store if you dive at the first offer you see. Also take into account the closing costs and whether they can be rolled into the loan.