Mortgage Mistakes
Taking a loan definitely is a daunting task. For some, the only investment they make during a lifetime is buying a home. So it is important to keep in mind certain points to avoid taking disastrous decisions.
Choosing the Wrong Mortgage
There are a wide range of mortgage plans available to choose from. If you are likely to be transferred in few years, may be 3 to 4 years never go for a fixed-rate mortgage with high closing costs. Next, never settle for adjustable-rate loan when you are sure your salary would not be revised in the near future. Especially, if the loan is being supported by more than one income, losing one of them could be a severe blow. Last but not the least going for a long term mortgage like 25 years is a big no if you intend to retire in another 10 years.
Not checking for Closing Costs
Not verifying the closing costs could be dangerous. The closing costs include a number of expenses like taxes, title insurance, attorney’s fees, and so on. This any come to nearly 2 percent to 7 percent of the selling price of the house.
Not enough Down Payment
The amount of money paid as down payment is directly related to your monthly installments, mortgage term and the interest rate. Usually it is 10 percent but now it has come down below that and in certain instances there is even 0 down payment. Remember one thing the lesser amount you pay as down payment, with its ripple effect you end up paying higher monthly payments, longer mortgage term and most important higher rate of interest.
Borrowing too much money
Many extend themselves too far to acquire bigger loans making wrong assumptions. It could be as simple as anticipating a huge hike in the salaries is a slow march towards financial disaster. Going by the standard fair laws, the total mortgage payment which includes taxes, interests, principal and all other insurances should not be total more than 25 percent of your monthly gross income. Beware of those lenders who can blind you and approve loans to excess of 50 percent of the income.
Checking the Credit Score
Once you decide to invest in a house it is important to have a good credit score to obtain best possible rate and loan term. You can order for a FICO score on the web for $14.5, it is the three digit number mostly used in mortgage lending decisions. To iron out any discrepancy in the credit score, it is better to get it six months in advance so that there is enough time to pay off the pending credit card bills.
Ignorant of prevailing rates and terms
It is important to be well informed about the changing rates and terms for someone with decent credit. If not you may get fooled by lenders who push “subprime” loans which are for people with poor credit, but are profitable to them. Due to lack of relevant knowledge you may end up paying few thousand dollars more. As of now the Private-sector loans are a viable option since you pay much less than the Federal Housing Administration (FHA) loans.