Are you considering purchasing a home and obtaining a mortgage loan? You may be wondering if the road ahead will be smooth, but here’s a hint: there will be mortgage challenges.
When beating mortgage stress, you must know the obstacles you might face and how to overcome them. Continue reading below.
1. Understanding Your Fair Isaac Corporation (FICO) Score
As soon as you know what type of mortgage loan appeals to you, as well as all its terms and conditions, it’s time to look at your credit score. Some mortgages look for certain scores or grades before you can be qualified. Your credit score is the main factor that your lender will consider. They want to see if you’re reliable with money and if you’ve been on time with all of your loan installments in the past. You can do this by requesting a free copy of your credit report.
2. Finding The Best Mortgage Loan
When you get a mortgage loan, it’s not just simply getting an amount of money and paying it back in installments with an interest. You need to find the best mortgage loan by getting good terms and conditions.
Some lenders calculate your monthly installments with an Annual Percentage Rate (APR), which is dependent on the prime rate. This means that if the prime rate fluctuates, then your installment amount will be adjusted according to that value. Moreover, you should search for a lender that provides low charges. Try to avoid any kind of prepayment penalties because they may cause you more trouble than good.
3. Paying Off Your Old Mortgage Debt
Getting a new mortgage means having an opportunity to clear out some of the credit card balances that have been haunting you endlessly or even pay off some other debts that are keeping you down.
However, don’t just use it as an excuse to go crazy shopping because some lenders will look at what kind of debt service coverage ratio you have. This means your monthly housing expense shouldn’t exceed a certain percentage of your income. Keep in mind that you have the power to negotiate the terms of your mortgage package with your lender. So, if you know how to put up a good fight, then by all means, do so.
4. Considering Refinancing
Refinancing may sound like an easy way out, but it’s not as simple as what some people think it is. There are some things that you need to consider before going for it. You must first check your credit history and score because lenders will look at this factor again before approving a new loan. If you’ve missed a few monthly installments or if there’s still some sort of debt left on your account, then refinancing won’t be possible for you.
5. Getting Pre-Approved
Getting pre-qualified is different from getting pre-approved because the latter means your mortgage loan has been approved before your house hunting trip begins. On the other hand, getting pre-qualified simply means you have an approximate idea of how much money you can borrow so you’d know what kind of property to look for.
You should start this process weeks or even months before shopping around for a new home because lenders may need time to pull up your credit score and other necessary documents. If anything goes wrong with your application during this process, then you’re going to lose the opportunity to buy the house that you’ve desired for so long.
6. Not Thinking About Future Changes
It takes more than having a nice house by your side to make a successful mortgage loan application. Some people make the mistake of overspending without considering future changes such as getting married, having children, putting their parents into a nursing home, or even just wanting a change of scenery with a better neighborhood. This may lead you to lose the property that you worked so hard for just because of an unforeseen event.
7. Not Being Realistic
Being unrealistic is possibly one of the most common mistakes that buyers make. It’s exciting to live in a huge mansion or an expensive suburb with luxurious amenities, but if you can’t afford it, then what good will come out of this? You have to be honest with yourself about how much money you’re willing to spend on your new home.
Don’t push yourself too far by borrowing more than what you’re capable of paying back at the end of the month. If anything goes wrong, foreclosure may be looming over your head, and no bank would want to deal with that kind of trouble. You should also consider selling off some things to stay within your budget.
While there’s no such thing as a perfect borrower, you should avoid committing these mortgage mistakes. Give yourself an edge by doing thorough research and proper planning in the process of buying your perfect house.