Some Common Mortgage Mistakes

[Jun 13, 2008.]

While the housing market is still in a steep decline, there are a few consumers who are taking advantage of the weakening market to buy their first homes. These consumers are usually young newly weds eager to make such a purchase and may not entirely understand the complexities of mortgages.

Many first time home owners use mortgages as a way to more easily afford the purchase. Even in the best of times this tactic can have its pitfalls and in fact was one of the main contributors to the current state of the economic market place. The sub prime mortgages collapse is normally blamed. The sub prime mortgages were aimed at those families who did not qualify for what is considered a standard mortgage. By using attractive adjustable rate mortgages as a incentive, families jumped at the chance and as a result found that they were unable to make the payments when the ARMs adjusted due to a change in interest rates.

Since the collapse, lenders are far more careful about who they lend to and for how much. With this in mind, first time home buyers should learn all that they can before they set foot in the lender’s office.

Even within the mortgage lenders there can be some misinformation. So it is all the more crucial to understand exactly what potential home buyers are getting themselves into and how to do it properly.

Mortgage lenders look at several pieces of information to determine if the borrower will be eligible for the mortgage loan. Among these include, income, dependability, reliability, and credit scores.

The credit score can be found through the three major credit bureaus; Experian, Equifax, and TransUnion.  Everyone is granted one free credit report from each of the credit bureaus per year. It is suggested that for consumers wanting to buy their first home with the aid of a mortgage take a look at their credit score.

If you find that the credit score is not as desirable as hoped then take strides to repair it. Paying down debt is a good place to start.

Should these consumers be approved for the mortgage loan, they will not want to take out too much and find that they are unable to pay. Many first time home buyers fail to take into consideration other financial obligations such as repairs, property taxes, and daily expenses. Use a loan that is well within your means.

A rather big mistake is that these home buyers fail to consider the closing costs. Closing costs include a number of fees like appraisals and lawyer fees. Many lenders will provide home buyers with a “good faith” estimate in order to prepare them for the shock. Even if the closing cost is met, home buyers fail to have enough afterwards for those little unexpected problems which can be detrimental and even result in being late for that first mortgage payment.

Mortgages can be a wonderful tool, if used properly. First time home buyers are able to make that purchase only be having access to such loans. It is important to understand as much as you can about mortgages in order to make informed and smart decisions.