February 17th, 2016 5:50 AM by Jackie A. Graves, President
shopping can be an overwhelming experience for first-time homebuyers, and is
not a walk in the park even for the experienced buyer. As you go through the
mortgage shopping process, consider these top five errors that can trip up any
1. Not Paying Attention to Your Credit Rating – A
poor credit score can result in a higher interest rate, or perhaps not
qualifying for a loan at all. Check your credit well before you begin mortgage
shopping to allow time for you to fix any errors or repair your credit.
You are able
to get one free credit report each year from each of the reporting agencies
(Equifax, Experian, and TransUnion). Check the report for any errors or false
accounts that could be damaging your credit. However, the free reports do not
give an actual score, and it may be worth purchasing a full report one time
just to verify your score.
Do not open
any other credit accounts from the time you start mortgage shopping until after
you close on your home. Any new credit translates to an increased risk to the
lender, and it could jeopardize your deal or raise your interest rate.
2. Forgoing Pre-qualification– Homebuyers tend to go shopping for a
house first, and then try to figure out how to pay for it. In that case, it
will be tempting for you to try to buy more home than you can truly afford.
is a fairly simple process that you can undertake with any lender – it does not
have to be the one you eventually deal with for your mortgage. The lender will
take information about your finances and give you an estimate of the mortgage
amount for which you can qualify. By pre-qualifying, you will get a realistic
picture of what you can afford and will not waste your time (or a lender's
time) chasing an unattainable goal.
If you are disappointed
in the results, continue to work on your financial situation until you can
pre-qualify for the house you really want – but don't kid yourself.
3. Incorrectly Comparing
Offers – Rates and total costs can be difficult
to compare, even for the most experienced homebuyer. Comparing fixed vs.
adjustable rate mortgages requires an online calculator, as well as some
assumptions about how long you intend to stay in the home and how the interest
rates will change over time.
similar loans can also be tricky to compare. Comparing mortgage rates directly
excludes closing costs and other associated fees; you need to compare APR
(Annual Percentage Rate) values that are supposed to include all mortgage costs
over the life of the loan. Even those can be somewhat misleading, because not
all lenders include the same costs in the APR calculation. So find an
experienced loan officer and have him or her carefully explain the cost details
of all offers. That’s what your officer is there for.
lock in a rate; otherwise, the rate may change before you get a competing quote
from an alternate lender.
4. Procrastination/Timing The
Market – Do not treat buying your home like an
experiment in day trading, waiting for the last fraction of a drop of an interest
rate. If you have a sufficient down payment and are otherwise ready, forge
ahead. If you want to wait because you want to build up more down payment money
or improve your finances for a more expensive home, that is fine also – as long
as your goals are realistic. However, holding up a purchase just to achieve the
lowest interest rate possible is unwise.
Failing to Lender Shop – Shop around for lenders just as you would for homes. You
want to feel comfortable with a lender at the pre-qualification stage before
entering the pre-approval stage, where your finances are examined in greater
detail and a hard credit check is run. Having multiple hard credit checks will
ultimately lower your credit score, unless they are concentrated in a fairly
short period and are all related to the same type of purchase (such as a
other potential pitfalls along the mortgage shopping path, but avoiding these
five should send you well on your way toward a successful mortgage shopping
experience – and ultimately, toward home ownership.
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