There are about 6 million homes sold in the United States annually. The bulk of these situations involve a buyer taking out a mortgage loan over the course of a few decades.
A mortgage is a great investment as long as you choose the best type and avoid some critical errors.
We’re happy to help you understand this better if you’re in the market for a new house. Here are some common mortgage mistakes that you should avoid at all costs.
Taking a Mortgage That’s Too Much
Never bite off more than you chew when taking a loan. It’s common to pay about $1,300 per month on mortgage premiums. You’ll pay more or less depending on where you live and what type of property you’re purchasing.
Consider your monthly income and never take on more than you can afford times three. So if your mortgage is $1,300 per month, make sure that you earn at least $3,900 and up each month.
Signing up for a huge mortgage note that you struggle to afford can put a strain on your finances and can stress you out. When you follow the 3x rule with your income, you decrease the chance of getting into trouble if you lose your job or have any other sort of economic distress.
Signing Up for Bad Terms
You should also make certain that you sign up for terms that are advantageous. Mortgages terms include details like the number of years you’re signing up for to whether the interest rates are fixed or variable.
Some of the types of home loans you might sign up for include fixed-rate mortgage, adjustable-rate mortgage (ARM), or home equity line of credit (HELOC).
You’re more likely to get bad terms when you don’t have a great credit score. Your FICO score will range between 300 and 850 in most cases, so shoot for a score that’s at the upper end of the spectrum.
Make sure that you have the freedom to pay off your mortgage early if you choose to. Certain loans have early termination clauses they either don’t allow you to pay it off early, or make it more expensive.
Check out this payoff mortgage early tips video to know what to look for in your mortgage plan.
Approving Loans With High Interest Rates
Always check out the interest rates above anything else. Study the market today to make sure that you’re not paying a high rate.
As a first time home buyer, you might also be subject to better interest rates.
You’ll get better interest rates and terms when you also place a down payment. Consider the largest amount you can afford and how it will affect the rates that you get.
Avoid These Mortgage Mistakes
When you’re aware of these common mortgage mistakes, you’ll be in a better position to avoid them.
The best thing you can do is be a good steward of your mortgage loan after you sign up for it. Make improvements to your property that will improve your curb appeal and home appraisal value.
Check out our other articles when you’d like to learn more about banking, finance, business, and more tips on how to be a smart homeowner.
