When shopping for a mortgage, there’s a lot to consider to ensure you’re getting the best deal. There are few mortgage misunderstandings that can both confuse you and cost you extra money if you don’t understand what you’re doing. Keep reading below as we debunk five common mortgage misunderstandings that could be costing you more money.
1. “I don’t need loan pre-approval to find the right home.”
Beginning to look for a home before you know what you can afford actually can cost you a lot more than just money. It could cost you the home of your dreams. In today’s competitive market, buyers who take the time to gain loan pre-approval before they begin searching for a home are seen as more credible than those buyers who just start looking. So, if you fail to gain mortgage pre-approval and happen to enter into a bidding war with a buyer who has already secured that lender “OK,” you may lose out on a home that seems to be just perfect for you.
2. “As long as I’m approved, my credit score doesn’t matter.”
When you go to buy a home, of course, mortgage approval is your main concern. So, if you know you have a credit score that is good enough to get your mortgage approved, you may not be worried about trying to boost it just a bit higher. But, in fact, you should! A higher credit score often means a lower interest rate, which means lower payments throughout the course of your mortgage. Ultimately, that means you pay less for your home. Your credit score matters – a lot!
3. “Once I’m approved, I can stop looking for a mortgage.”
Though gaining initial loan pre-approval is an immensely satisfying feeling, it does not mean that you can stop shopping around. If you do, you could miss out on the best rate. Instead, you can take that initial pre-approval and continue shopping for a better rate with peace of mind, knowing that your mortgage can only get better!
4. “My home only costs as much as my mortgage payment.”
Once you gain loan pre-approval, you may begin to try to determine what your monthly mortgage payments will be. But don’t be fooled into thinking that estimated payment will be the only monthly expense associated with your home. You need to include property taxes, insurance, and possible homeowner association fees as well. When you add in those necessary extras, you need to make sure you’re not pricing yourself out of your available budget.
5. “I don’t need to put 20% down on my home.”
Frankly, you’re right. You don’t. But this mortgage misunderstanding certainly can cost you. If you choose a conventional loan that is lenient when it comes to your down payment, you’ll probably be paying a little extra in other places. It is likely you’ll need to pay for private mortgage insurance, or PMI. You’ll also likely face a higher interest rate than a buyer who is willing or able to put more money down. If you can afford to put the entire 20% down on your new home, save somewhere else by making that payment!
Curious what you can afford? Check out our handy mortgage calculator by clicking here.
Have more questions about getting a mortgage for your next home purchase? Please reach out. We’d love to chat and help answer any questions you might have about this important aspect of the home-buying process.