Real estate and finance are tough topics to understand. The average renter knows nothing about mortgages going into their first house, and homeowners who need to refinance or take out second mortgages often take the plunge out of immediate necessity, and don’t research the long term effects. MSN Money offers suggestions on how to avoid making huge mortgage mistakes.
Their first tip is to fix your credit. Obtain copies of your credit report and FICO credit score, then give yourself about six months to address any issues that you may have with your credit.
Look for first-time home buyers’ programs. These programs are sponsored by the city, state or federal government, and will offer you lower interest rates and better terms than private lenders. Some are designed for people with terrible credit, while others focus on those with little saved for a down payment.
You should get pre-approved for a loan. This involves submitting tax returns, pay stubs, and other information. Then, the lender looks over your information and verifies it; if everything checks out, they’ll tell you in writing that you’re eligible for a loan. People who make offers on homes and are pre-approved are in a better position than those who are only pre-qualified.
Don’t borrow too much money. Taking out the biggest loan possible, and planning on paying it comfortably as your salary increases, is not a good strategy. It’s expensive to own a home - look within your budget and keep in mind: homeowner’s insurance, property taxes and other expenses of owning a home.
Make sure to shop around for rates and terms. Don’t get stuck with a “subprime” loan if your credit is good! MyFico.com lists typical loan rates by credit score.
Try not to pay junk fees. Some fees are legitimate, others inflated and a few are just down right fluff. Common fees are for document preparation and credit checks. Challenge the fees with a mortgage broker or call lenders and compare fees. Ask about “points” charged to get their rates.
Plan for closing costs. Think about attorney fees, taxes, title insurance, prepaid homeowner’s insurance, points and other lender’s fees. Get a good faith estimate from your lender so you can plan accordingly.
Make sure to have cash in hand afterward. Your house can throw unforeseen problems at you, and the cost of moving is a lot as well. You need money to live and maintain your lifestyle!
Furthermore, if you already have a mortgage, but are struggling with it, check out 8 tips before you refinance and save yourself some trouble.
Interested in other mortgage-related topics? Not what you were looking for? Take a look at how mortgages are starting to positively impact banks’ financial success, or how Freddie Mac reported on low 30-year mortgages.
