(& how you can help yourself avoid them)
For many, purchasing a home is a dream come true, representing a significant milestone in their lives. However, navigating the world of mortgages can be daunting. To help you achieve the American dream without falling into common traps, we've compiled a list of the top three mortgage mistakes, how you can avoid them, and resources to assist you along the way.
The most common mortgage mistakes can be divided into three categories: (1) education, (2) preparation, and (3) costs.
It’s crucial for you to educate yourself about all things mortgage. This includes the steps, the requirements, the benefits, the options, the timeline and more. Doing so will minimize confusion and stress along the way, and ensure you know what you’re looking for.
This can be done in a variety of ways, the most accessible being the Internet. Here, you have access to countless articles, videos (YouTube is a great resource), and step-by-step tutorials on homeownership, mortgage and homebuying process. Some places to find insightful articles on relevant topics include:
At Defy Mortgage, we have a variety of different educational resources to help you throughout your purchasing journey, including:
- A robust set of mortgage and real estate industry articles which can be found on our blog, The Digital Deed.
- A mortgage calculator that allows you to estimate your monthly mortgage payment, including taxes and insurance, to calculate your payment breakdown, schedule, and more.
- Social media channels on Facebook, X (formerly known as Twitter), LinkedIn and Instagram where we discuss topics such as industry tips in our Tip Tuesday series, industry facts every Friday, industry news every Monday, and highlight solutions to questions, concerns, and pain points from other homebuyers with the goal of providing useful information to our realtor partners and better serving our clients.
For financial advice, homebuyers should consult with their financial advisor who can assist you with understanding your specific financial circumstances based on your financial history and personal goals, before and during the homebuying process.
Even before applying for a mortgage, preparation needs to be done; lack thereof can negatively affect you throughout the process. Let’s take a look at some of the top mortgage mistakes that homebuyers and borrowers make during the preparation process:
Not Getting Pre-approved: Get pre-approved for a mortgage before house hunting. These documents clarify your creditworthiness and affordability. Pre-approval letters provide you, your real estate agent, and sellers with an idea of your financial situation and provide confidence that you’ll be able to fulfill the obligations you take on when buying a home.
Waiting Too Long After Finding A Good Rate: Prices fluctuate daily for mortgages. It may make sense to lock in your rate vs. float the rate and take a risk that the rate could increase. If you have any questions about this, let us know.
Making Another Large Credit Decision: Anything that will affect your credit score and your debt-to-income ratio, thereby impacting your interest rate or debt-to-income ratio is worth noting. The debt-to-income ratio (DTI) will generally be the deciding factor on how large of a loan you can qualify for. You don’t want to be seen as a risk to lenders, hurt your interest rate and/or approved loan amount.
Neglecting to Compare Mortgage Options to Fit Your Needs: Don't make this mortgage mistake. Choosing the right mortgage is just as important as finding the perfect home. Understanding your options and choosing the right mortgage is crucial, as many homebuyers make the mistake of not exploring the options available to them, causing them hesitation, extra and unnecessary stress, or even poor loan terms.
There is a diverse range of mortgage options from traditional options such as conforming and jumbo loans, to non-traditional options such as bank statement loans, perfect for self-employed borrowers, or DSCR loans for real estate investors. Selecting the one that aligns perfectly with your financial and personal goals is key. Your realtor, and our team at Defy, can help guide you in the right direction.
Falling in love with a property outside your budget is a common pitfall. It's essential to be realistic and avoid overextending yourself financially. Don’t forget about all the costs associated with purchasing a home. Additional expenses like down payment, insurance, closing costs, maintenance fees, taxes and more need to be considered. For financial advice and help, talk to your financial advisor.
Not Considering Mortgage Insurance: The larger the down payment you make, the more equity you’ll have in your home, and the lower amount you have to borrow. Oftentimes, borrowers are required to purchase private mortgage insurance, or PMI, if they’re unable to make a significant down payment. If this is something you think you might need, this needs to be factored into your budget.
Forgetting About Closing Costs: These are more or less the last step of buying a home. However, they’re equally important in the process. Closing costs range anywhere from 2%-5% of your purchase price. While that percentage sounds small, think about how fast that adds up when you buy a house for a few hundred thousand dollars.
Overlooking Home Ownership Costs: The price of owning a home goes beyond the mortgage payment. It requires expenses such as utilities, home repairs, property taxes, HOA fees (if applicable), homeowners insurance and more. Chat with your financial advisor if you have questions about what you can afford – they can give you the financial advice and insight that you need.
Skipping Inspection: A professional home inspection can seem like an unnecessary cost to people who did a walkthrough of their house, but in reality, many problems aren’t immediately apparent. In turn, once revealed, these issues often cost more than an inspection would have. We’ve all heard the horror stories of countless problems being unleashed after a move that could’ve been avoided with an assessment. The inspection will also provide peace of mind to you.
While there are many frequent mistakes made during the homebuying process, there are also many ways in which to avoid them. By steering clear of these issues, you’ll have a much easier time throughout your loan process and also peace of mind as you embark on this exciting chapter in your life.
As always, feel free to contact us if you’re considering or are interested in getting pre-approved. We are committed to providing customized loan solutions that cater to your specific needs. Whatever your situation may be, we are dedicated to assisting you every step of the way. Explore our website to learn more about your loan options and how we can assist you.