Common Mortgage Pitfalls To Avoid
It is said that a mortgage is the biggest debt many people will ever have to carry. As the case is with everything in life, there are risks associated with taking out a mortgages – risks that can escalate into nasty situations should they not be navigated properly. Simple mistakes can be made which sometimes leads people to pay more than necessary for their home or to lose their home in extreme cases. These mistakes are avoidable and some of them are discussed here to help inform the decision making process of prospective borrowers.
1. FAILING TO COMPARE OFFERS
People are more concerned about picking out a house today than they are about partnering with the right lender. According to the Consumer Financial Protection Bureau, more than 50% of Americans only consider one broker or lender while applying for a mortgage and 75% fill out their applications with only one broker. This situation is an avoidable pitfall, by considering many different brokers and lenders, prospective home owners can compare the numbers from all sides and ensure that they are getting the best value for their money – not just what is being offered.
2. FORGETING THE TRUE COST OF OWNING A HOME
Buyers need to have a personal budget and in it, allocate at least 1-2% of the cost of their home annually for maintenance of the property. Ignoring this cost is asking for trouble, since such expenses will crop up whether they are liked or not. A $250,000 home, for example, will cost between $2,500 and $5,000 to maintain every year. Should this kind of amount be allowed to come as a surprise, it has the potential to destabilize finances and lead to delays in remitting mortgage payments – thereby incurring more fees and more debt.
APR calculations also need to be very accurate. A lower interest rate does not automatically translate to lower APR because of the possibility of other charges – prospective borrowers need to keep their eyes open for such financial sink holes.
3. CHOOSING TO BE HOUSE POOR.
This is also another area of incessant mistakes by borrowers for a new home. In calculating repayment plan, many forget the need to ensure they have enough money at hand to handle day – to – day expenses, prepare for emergencies among others. Experts advise that 28% is the highest amount of monthly income that should be spent on housing – this includes mortgage debts, insurance premiums, etc. Someone who earns $75,000 yearly should not spend more than $1,750 on this. Other factors also contribute to determining how much an individual can afford: like the location and cost of living, presence of a personal debt, other debts or loans being serviced, etc. Falling into this trap can take the shine out of the home – owning experience and create more of a “buying hell” kind of situation.
There are more mistakes to watch out for, but the 3 discussed above are the cream of the crop since they are situations that usually gets overlooked.