3 Mistakes Everyone Makes When Getting A Mortgage
Buying a home and obtaining a mortgage can be stressful, even when you think you have a well-organized plan. Case in point: A recent Zillow survey found half of all homebuyers, particularly Gen Zers and millennials, many of whom are first-time home buyers, felt so overwhelmed during the elongated process that it left them in tears. For many, it's even more nerve-wracking than planning a wedding or being fired. Of course, there's a lot on the line, and mistakes can be costly, particularly if you're entering the wrong 30-year mortgage term.
Moreover, mortgages are complex, legally binding, and certainly intimidating, especially if this is your first time buying a home. It's not uncommon for people to feel on edge when making weighty financial decisions. But if you had a few tips and tricks to help you avoid some of the most common mistakes in the process, you might feel a bit more at ease heading into your broker's office. Consider these few key mistakes to avoid as you work through this process.
Not meeting with multiple lenders
One major miscalculation that many homebuyers make is talking to just one lender, applying for a loan, and accepting what they're offered. Even if you're applying to your personal bank or credit union, that's simply not enough, according to the Consumer Financial Protection Bureau. Rather, the agency advises meeting with at least three lenders after compiling a list of potential financial institutions to ensure you know all your mortgage options.
When meeting with lenders, talk about your financial and life situations, as well as the type of loan you hope to obtain. Moreover, it's important to learn about potential interest rates, monthly payment estimates, APR, and any other anticipated fees if you decide to accept the loan offered to you. You might also want to ask the lender to review your documents, such as income and debt statements, credit reports, and employer information, to see if they spot any potential red flags that would disqualify you from obtaining a mortgage. Do this before formally applying to protect your credit score from multiple hard inquiries.
Only getting pre-qualified
Only getting pre-qualified could prevent you from putting down an offer on your dream home. Often, the first step in working with a mortgage lender is to provide them with estimates and details about your qualifications, including your income, expenses, and assets. The lender may pre-qualify you for a loan based on the information you supply, according to Investopedia. That's not enough, though, to head into a competitive market or to start searching.
Instead, you need to become pre-approved for a mortgage, which is a more formal step requiring verification of all submitted information. That's because the lender typically hasn't looked close enough at your financial information to determine how much they can offer in pre-qualification. The process of pre-approval is more complex, and while it takes a bit more time and work to provide all your data, it's a valuable step because the lender can provide more accurate loan offers. This way, you won't spend time looking at homes you may not financially qualify for through your lender.
Applying for new credit during the process
Perhaps you're excited and ready to pick out furniture and new appliances for your soon-to-be home, and that could presumably mean you want to open a few lines of credit with retailers to help cover those costs. But no matter how tempting this may be, avoid doing so during the mortgage application process to prevent dinging your credit score, per Experian.
Overextending your borrowing capacity or having a significant amount of new activity on your credit report could cost you the loan because it could impact your overall rating. New accounts or higher balances on your existing accounts can increase your credit usage, thereby dropping your credit score. Since your mortgage underwriting team is working to approve your loan based on existing data, that higher usage could create numerous complications. Many underwriters will pull line information before closing on the loan to ensure nothing has changed. If that's the case, it could halt the entire process, costing you the property.