Buying a home can be a stress-inducing, crazy-expensive purchase to make. According to U.S. Census Bureau, the average price of a new house is $272,900. On top of all the things you’re already doing—hiring a real estate broker, looking at numerous properties—you’ve got to get a mortgage, too. And if you’re not smart about it, these five common missteps can increase the cost of your expenditure even more.
Not Checking Your Credit Report Card
When you apply for a mortgage, the first thing a lender is going to do is check your credit report. The better your credit score, the lower the interest rate you’ll receive. If you have extremely poor credit, you could even be rejected from getting a loan.
Because of this, it’s wise to look at your report long before any financial institution does. Request a copy six months to a year before you plan on applying for a mortgage. That way, you have time to improve your credit score or fix errors on your credit report card if you have made poor financial judgments in the past or if there’s an error on it.
Changing Jobs Frequently
Lenders want borrowers that have consistent employment status and a steady stream of income. So if you’ve been bouncing around from job to job, banks will think you’re a risky candidate for a loan, and as a result, it’s likely that you’ll be quoted a higher interest rate—or, in some cases, won’t be able to secure a loan at all. If possible, you should remain in your current job until you’ve signed your mortgage paperwork.
Not Shopping Around
Even though the Federal Reserve sets the benchmark interest rate, individual financial institutions ultimately determine the rate they’re going to charge their borrowers. Interest rates do vary amongst lenders, plus, banks often have different borrowing requirements and fees. Seeking out quotes from several banks is the best way to avoid overpaying on your mortgage.
Having a Down Payment That’s Too Small
Prior to the 2008 mortgage meltdown, it was common for homebuyers to make a purchase with little—or even no—down payment. Those days are gone. Now, you typically must be able to put down 20 percent of the sale price, or it’s likely that your lender will require you to have private mortgage insurance. This additional coverage will add even more to your monthly payment: According to Bankrate, PMI fees typically cost between 0.3 percent and 1.15 percent of the loan amount per year.
Not Locking in Your Interest Rate
Interest rates are always fluctuating. In order to keep the rate you were quoted, you must lock it in (most lenders allow you to do this for 30 to 45 days). If you’re unable to close on the property within that time frame, you could be on the hook for a higher interest rate or additional fees for extending the lock period. So keep that in mind when negotiating the terms of your loan.