Buying a home is a big decision that involves a lot of planning and research. You want to make sure you get the best deal possible and avoid any costly mistakes. Here are five common home financing mistakes that can cost you money and how to avoid them.
1. Not shopping around for a mortgage. Different lenders may offer different interest rates, fees, and terms for your mortgage. If you don’t compare different options, you may end up paying more than you need to over the life of your loan. To avoid this mistake, shop around for a mortgage and compare at least three different offers from different lenders.
2. Not checking your credit score and report. Your credit score and report affect your ability to qualify for a mortgage and the interest rate you will pay. If you have errors or negative items on your credit report, they can lower your score and make it harder to get approved or get a good rate. To avoid this mistake, check your credit score and report before applying for a mortgage and dispute any errors or inaccuracies.
3. Not saving enough for a down payment and closing costs. A down payment is the amount of money you pay upfront when you buy a home. Closing costs are the fees and expenses you pay when you close on your loan. Both of these can add up to thousands of dollars and affect your loan amount and monthly payments. If you don’t save enough for them, you may have to borrow more money or pay higher interest rates or fees. To avoid this mistake, save at least 20% of the home price for a down payment and 2-5% for closing costs.
4. Not getting pre-approved for a mortgage. A pre-approval is a letter from a lender that shows how much money they are willing to lend you based on your income, assets, debts, and credit history. Getting pre-approved can help you set a realistic budget, narrow down your home search, and show sellers that you are serious and ready to buy. To avoid this mistake, get pre-approved for a mortgage before you start looking for homes.
5. Not reading and understanding your loan documents. Your loan documents contain important information about your mortgage, such as the interest rate, monthly payments, fees, penalties, and terms. If you don’t read and understand them, you may agree to something that you don’t want or can’t afford. To avoid this mistake, read your loan documents carefully and ask questions if anything is unclear or confusing.
