A mortgage is also commonly known as a mortgage loan. It is a legal agreement between two parties; the homebuyer (in most cases, you!) and the moneylender. People get into this agreement to refinance a home in case the buyer is not in the right capacity to make full payment upfront. This agreement works as a legal document that gives the money lenders immunity and the liberty to take legal action against the said homebuyer in case he/she fails to pay the entire amount of money in the required time decided in the first place.
The home buying experience is the most exciting, but also the most daunting one! Amidst the rush of happiness of finally purchasing a house, it is also the panic of following through with different elements that go into house buying. One of the most important elements out of all is getting a mortgage. It is essential because it determines the amount of money you may be eligible for and how much the home may end up costing long term. Let us put it this way - you may be just one mortgage mistake away from losing out on your dream home forever!
The majority of homebuyers in India buy a home with the help of a mortgage. While there is a lot of material and information on the web about what a mortgage loan is and the steps that can be taken to acquire one, there is not much information on the common mortgage mistakes homebuyers can make along the way. It is especially important to be aware of these mistakes not only because they have a lot of consequences but because these consequences can result in a lifetime of difficulties when it comes to you wanting to buy a home again.
Given below are some common mortgage mistakes that homebuyers can consciously avoid making and increase their chances of getting a good mortgage loan deal on the journey towards finally purchasing their own dream home.
Also Read: 4 Ways On How House Hacking Can Help you Buy a House
1. Prioritizing Looking at Houses before Looking at a Mortgage Provider
While house hunting and shortlisting houses sound exciting and something all home buyers want to just get started with, it is slightly more important to sort out all mortgage-related details first. If you do not have a mortgage provider finalized, the sellers may not take you as seriously. No seller wants to get their hopes up with a buyer who has not yet decided on a mortgage provider. After all, why would the seller want to take a risk with a buyer who may or may not get approved for a qualified loan? When you have a pre-approval letter in hand at all times during house hunting, your chances of actually convincing the seller to sell you your dream house will significantly increase.
2. Ignoring your Credit History
Most of us do not pay much attention to our creditworthiness before filling in applications for a mortgage loan. We feel that this aspect of a mortgage is easy to address and can be done at a later stage. Thinking in this manner is the biggest mistake homebuyers end up making. The second you apply for a mortgage, the lender goes through your credit report that consists of your credit history right from scratch. Instead of ignoring your credit history, you need to analyze and be aware of it so that you can rectify any inconsistencies or errors that it may have. The sooner you correct the mistakes, the more chances you have of improving your credit score.
3. High Debt to Income Ratio
Add all your monthly debt payments and divide it by your gross monthly income in order to find your debt to income ratio. It might be a problem if your debt to income ratio is high since that is said to indicate your inability to repay debts or take them seriously. Studies suggest that this ratio should be below 43%. If it is not, you may lose all your chances of getting qualified for a mortgage loan.
Also Read: Debt to Income Calculator
4. Selecting a Lender without Paying Much Attention
Choosing and deciding to get into an agreement with the very first lender that decides to give you a mortgage loan is probably the biggest mistake you can make. In this situation, the best path to follow is to compare different lenders and accordingly decide which ones suit you the best. Research says that a buyer should at least be in conversation with 3 lenders before choosing one. At the end of the day, your relationship with the lender will be long term and you do not want to regret it when it is already too late.
In case you feel confused at any step of the way and cannot reach a decision, ask yourself these questions -
- What are the different types of fees that you need to pay?
- Do your payment plans match with the lender?
- Are you rushing your decision and would like to explore more lender options?
- Do they offer ample types of mortgages?
- Do you have enough credit score to qualify for the mortgages on offer?
5. Getting a Mortgage Pre Qualification, and not a Pre Approval
Ask yourself - do you have 100% clarity about the difference between a pre-qualification and a pre-approval? Either way, let us explain it in the simplest of terms.
A mortgage pre-qualification does not hold much importance in the real estate industry. This certificate is issued entirely based on the information the buyer has given to the mortgage provider verbally. No research goes into this and no legal documents or qualifications are required for the provision of this certificate. Moneylenders give pre-qualification on the basic assumption that everything the buyer is telling them is 100% true and there is no need to run background checks or verification.
A mortgage pre-approval on the other hand is issued after a lot of deliberation and research on the buyer. All proofs and documents are collected by the moneylender and thoroughly checked. Financial information like tax returns, credit history, pay stubs, etc. is also reviewed before issuing the pre-approval certificate.
All top real estate agents ask for your pre-approval certificate before even beginning the process of showing you homes. We assure you that the extra time and effort that goes into getting a pre-approval certificate is completely worth it.
6. Waiting to Finalise on Homeowners Insurance
Do you know that you have 0 chance of getting your mortgage loan approved till the time you do not purchase and pay your home insurance? Just like interest rates can vary from lender to lender, home insurance rates can fluctuate from provider to provider too. It is best to save yourself unnecessary stress by delaying the process of finalizing your homeowner’s insurance. You do not want to keep postponing your closing especially after you have already finalized your dream home.
Also Read: Importance of Home Insurance
7. Unstable Job History
This is a factor that is given a lot of attention while deciding whether you are qualified enough for a mortgage loan or not. You will have lesser chances of getting your loan approved if you have a history of sporadic jobs or if you have changed an unusual number of jobs in the last few years. However, you are good to go if you have changed a lot of jobs, but all of them are in the same sector/industry. Job stability is essential.
While these mistakes may seem petty and not too difficult to avoid at first, it is when you deep dive into the whole process of buying a house is when you realize how easily these mistakes can be made. There are so many elements to focus upon that sometimes, you may end up neglecting your mortgage loan. However, now that you have been made aware of some of the most common mistakes, we feel you are well on your way to easily buying your dream home!
Have your documentation in place, and pay close attention to this whole process. If you still have any unanswered questions about your mortgage and its process, do not dive into the application process without clearing it all out. Feel free to reach out to us and seek any kind of help you think you may need. After all, your future home depends on this and you for one should not leave any stones unturned!