Home mortgages are a tricky business. It isn't everyday that you shop for a home, so naturally, I don't expect you to be experts with the home mortgage process. However, since a mortgage is such a large amount of money, I want you to be as prepared as possible. To help you get started, here are some of the top mistakes I've noticed that homeowners make when applying for a mortgage.
Choosing The Wrong Mortgage. There are many types of mortgages that you can choose from, including fixed-rate mortgages, adjustable-rate mortgages, interest-only mortgages, and balloon mortgages to name a few. With so many to choose from, it's easy to make the wrong choice, especially for buyers who aren't familiar with the advantages and disadvantages of each.
Choosing the wrong home mortgage can be detrimental in some cases. You could find yourself owing the full balance of your home within a few years, or you may find yourself making higher monthly payments when the interest rate goes up. Before you make a final decision about a mortgage, make sure you fully understand the terms, interest rate, and life of the loan. Feel free to ask me as many questions as you need to ensure that you are getting the loan that is best for you and your circumstances.
Borrowing With Too Much Debt. Just because a lender approves you for a home mortgage with your current debt load doesn't mean you should take it. Lenders analyze your debt in different ways to determine whether or not to extend a loan to you. Borrowing for a home mortgage when you have too much other debt will put a strain on your finances. When you have too much debt you are at a high risk of defaulting on your mortgage, which can lead to foreclosure.
Before taking on a home mortgage, do an analysis of your current financial situation. Consider all the income and debt you have, and also consider your current employment situation. How much will your income increase in the coming years? As a general rule, if your debt is more than 40% of your gross income, you should reconsider purchasing a home until you have decreased the amount of your debt.
Making Too Small A Down Payment. The less you put down on your home mortgage, the more you have to borrow. This ultimately leads to higher monthly payments, and the higher monthly payment may include the cost of Private Mortgage Insurance because your down payment was small.
Fortunately, higher monthly payments can be avoided. Even if you are unable to save up a sizeable down payment, it doesn't mean you have to be put into a financial bind. It is best to save up as much as you can for a down payment and search for a home that is well within your budget and comfort zone.
When it comes to home mortgages, the key is to not bite off more than you can chew. A mortgage is a considerable undertaking, and it's imperative that you prepare yourself!