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8 Dumb Mortgage Moves

8 Dumb Mortgage Moves

Purchasing a home can be a stressful experience dealing with multiple parties and juggling finances to qualify for a mortgage. Most problems arise from not being properly prepared or anticipating additional expenses needed for closing. A little knowledge goes a long way when buying a home so avoid these dumb mortgage moves whenever possible.

1. Changing Jobs

To qualify for a mortgage most lenders require consistent employment of two years or more to prove stable income and the ability to make monthly payments. Keep this in mind if you're looking to purchase a home in the next 3 to 5 years. Consider staying in your current job until after closing and then start job hunting.

2. Delaying Pre-Approval

There is nothing worse than finding your dream home and discovering later you don't qualify when applying for a mortgage. Prior to contacting a realtor or looking online, speak with at least three mortgage lenders and get paperwork started to pre-qualify. If you know how much house you can buy you can use that to narrow down the field when searching for homes.

3. Not Comparison Shopping

Many potential home buyers will either contact their current financial institution where they have a checking and savings account or even worse let a builder determine which mortgage they select. There are normally dozens of banks and credit unions in a given metropolitan area so let your fingers do the walking and speak with a few loan officers. Be sure to ask about interest rates and closing costs when shopping around.

4. Having a Small Down Payment

The more money you put down the more options you have when selecting a mortgage. Conventional loans require a minimum of 20% down. While other loans like FHA and VA often require significantly less they normally come with PMI and higher interest rates. Also, the less you finance the more money you save in total interest while paying off the mortgage.

5. Ignoring Closing Fees

Closing fees when purchasing a home can equal 3% to 5% of total mortgage value. To minimize costs, do your research and find out which closing fees are negotiable or excessive and use this information when dealing with mortgage lenders and title companies. This is especially true in slower housing markets where realtors are fighting for a limited customer base and are willing to negotiate fees.

6. Not Knowing Your Credit History

Your overall credit history and credit score will ultimately determine what mortgage you qualify for and what interest rate you pay. Getting excited about buying a home and then finding out afterwards that black marks like charge-offs or repossessions prevent you from qualifying for a mortgage can severely alter your plans. Much like saving for a down payment, anticipate your future purchase date and take steps to repair your credit prior to looking for a home.

7. Not Locking In Rates

Mortgage interest rates fluctuate daily and can vary dramatically from lender to lender so when prequalifying for a mortgage, verify that the quoted rate is locked in for a minimum of 30 days. Some homes take longer to build than others and sometimes negotiations and closing dates get pushed out so save yourself additional interest payments by locking in a lower rate.

8. Overextending Yourself

Many home buyers make the mistake of finding out how much they qualify for and then looking for homes that hit their maximum amount for a mortgage. Overextending yourself financially and not anticipating future costs like remodeling in older homes or landscaping in newer homes may leave new home buyers financially strapped. Purchase a home which fits the current and future needs of you and your family but doesn't increase the risk of foreclosure if money gets tight.

Image by: daryl_mitchell