Tuesday, April 22, 2014, AM | 1 Comment
Whether you have plans to purchase a new home or to refinance your existing mortgage, you understandably want to set up the right financing to achieve your goals. However, there are some common pitfalls that many loan applicants stumble upon, and these can ultimately result in financial loss or other challenges.
By understanding what these common mistakes are, you can more easily avoid them and be happy with your home financing situation.
Read on to learn about the types of mistakes you can’t afford to make when it comes to financing your home.
Borrowing More Than You Can Afford
It is common for loan applicants to contact a mortgage company to inquire about the maximum loan amount they can afford. Lenders will review factors related to your expenses and income level to determine the maximum loan they will lend to you.
However, this does not necessarily mean that that the loan payment is affordable for you. For example, if you have an expensive lifestyle, your lifestyle may be cramped by a very high mortgage payment. Opting for a slightly lower loan amount may make your budget more manageable.
Not Understanding the Loan Costs
It is an unfortunate truth that some borrowers are surprised by loan costs during the loan process or at the closing table.
While lenders are required to disclose all costs up-front in a good faith estimate, the fact is that some borrowers simply do not understand what these costs are or how they will impact them.
Reviewing the costs with your lender and asking questions is a great way to avoid surprises.
Not Thinking About Your Long-Term Plans
Your loan term will have a direct impact on your mortgage payment. A longer term results in a lower monthly payment, and it may help you to qualify for a higher loan amount.
However, committing yourself financially to a 30-year loan is not always the best financial decision. For example, if you are approaching retirement age and plan to remain in your home after retirement, a 15-year loan term may be better.
Take time to think about where you plan to be in 15, 20 or 30 years in order to choose the best term for your future plans.
Choosing the Wrong Type of Loan
There are many types of loan programs available to you, such as low down payment loans, interest-only loans, adjustable rate loans and fixed rate options.
Some loan representatives may guide borrowers into a loan program they believe is best for the borrower with good intentions, but the loan representative may not have all of the information about your goals and plans or your finances.
Borrowers should educate themselves about the options so that they make a financing decision that is best for them.
Not Understanding How an Adjustable Loan Works
Adjustable rate loans often have lower advertised rates than fixed rate mortgage programs, and because of this, they are eye-catching.
A lower initial rate may result in a lower mortgage payment and the qualification for a higher loan amount. However, when the interest rate adjusts, the mortgage payment will also adjust.
Borrowers should take time to ensure that the loan will continue to be affordable to them if the mortgage payment escalates.
These are among the most common mistakes borrowers make when applying for a home loan. Keep these points in mind as you apply for your loan, and you may make a more informed decision for your home financing needs.
If you don’t know much about home financing, it is best to consult a financial professional before making any big decisions.
A financial adviser can help you avoid any potential dangers and give you good ideas about the direction you should be headed.
This article was written by Dixie Somers, a freelance writer who loves to write for business, finance, women’s interests, and technology. Dixie lives in Arizona with her husband and three beautiful daughters.
Information for this article was provided by the professionals of Perry Homes who help buyers with home design and financing options for their new home.