New home buyers are known for rushing through the financing just to get the deal done as quickly as possible, which can lead to a number of costly mistakes.
The process of building a new home is filled with all kinds of fun and exciting experiences like choosing the look of your new granite countertops or the color of your home’s exterior.
One aspect of building a new home that is not quite as exciting is handling the financing to buy the home.
Because of this, new home buyers are known for rushing through this process just to get the deal done as quickly as possible.
This can lead to a number of mistakes that might end up costing you quite a bit of money over the life of your mortgage.
With that in mind, here are seven of the most common mortgage mistakes that are made by new homebuyers:
1: Not Choosing a Reputable Lender
The best way to avoid all of the pitfalls that are associated with a new home mortgage is to work with someone who has a proven track record in the business.
Established mortgage brokers that are in business for the long haul are going to want to make sure that you are happy with your mortgage so that you will recommend them to other potential clients.
Just because some fly-by-night company you have never heard of offers you a great deal on an interest rate doesn’t mean that they are the best option for you.
You want to do business with people who have been around for many years and plan on continuing to do business for many more years.
2: Borrowing Too Much
The second biggest mistake that many new homebuyers make is taking on a larger mortgage than they can reasonably handle.
If you have good credit, many banks will be happy to offer you a large mortgage that might be a little beyond a monthly payment that you can reasonably afford.
Make sure that you are doing your own numbers to decide if you can afford the payments you are signing up for, and don’t forget to include regular expenses that you aren’t willing to give up in your budget calculations.
The banks aren’t going to factor in your daily $5 latte or your $250 cable bill, but if you intend on keeping your coffee habit and all of your premium movie channels, you have to account for that.
3: Automatically Opting for a 30-Year Fixed Mortgage
The 30-year fixed mortgage is the most popular type of mortgage, but that doesn’t mean that it is the right type of mortgage for your situation.
If you can afford larger payments, opting for a 15-year fixed rate mortgage is a great way to save a fortune on interest over the life of the loan.
You also might want to consider a variable-rate mortgage because rates are so low now, but make sure you will be able to afford the monthly payments when the rates eventually climb higher.
4: Not Shopping Around for the Best Rates
Another common mistake that many new homebuyers make is taking the first offer that meets their needs.
Just because one bank offers you a mortgage that you can afford doesn’t mean that the bank down the street can’t give you an even better deal.
Banks that offer mortgages are in the business of lending money, so use that to your advantage and make them compete with each other to give you the best possible mortgage.
5: Not Getting a Rate Quote in Writing
Just because a mortgage broker offers you a particular rate today does not mean that the same rate will be available tomorrow.
While you are shopping around for the best rates, you will want to get any offers you might consider in writing with a deadline of how long the offer will stand.
You don’t want to pull the trigger on building your dream home only to find out that the interest rate is higher than what you budgeted for.
6: Trying to Time the Market
Over the past few years, you have probably heard that the current low interest rate environment makes this a great time to buy a new home.
While that is true, if your only motivation for buying a new home is the low interest rate, you are almost certain to make enough other mistakes to negate the value of the low interest rate.
There are many different factors that influence a home’s value, so make sure you are considering everything before jumping in headfirst.
7: Underestimating Closing Costs
Closing costs are a huge expense that many new homebuyers forget to factor in when they are deciding whether or not they can afford a mortgage.
In order to make sure that you are properly prepared for the closing costs, get multiple estimates from different sources about what to reasonably expect for closing costs in your area.
Your lender should provide you with a “good faith estimate” that breaks down the closing costs, but you will want to double check with at least one other source to verify their numbers.
Getting a great mortgage for your new home can mean the difference between affording the optional upgrades that make the home yours and having to settle for the base model.
The problem is that the details of the mortgage can be incredibly boring and even confusing if you don’t know what to look for.
Simply avoiding these common mistakes will be a great starting point towards ensuring that you are getting the best deal possible on your new home mortgage!