Mortgages
The 7 biggest mortgage mistakes
A home loan is the biggest debt and monthly expense most of us will ever have.
That's why the 7 biggest mistakes borrowers make when shopping for a home loan can be so costly and aggravating. Avoid them, and you'll be a much happier and smarter home buyer.
Mortgage Mistake 1. Not shopping around for the best deal.
Finding the right combination of low interest rate and reasonable fees can shave thousands of dollars off your closing costs and monthly payments.
But you'll never know whether you got a great deal if you only get one quote from the bank down the street or the mortgage broker that arranged your last loan.
Our extensive database of mortgage rates can give you a good sense of what loans cost right now.
Follow our step-by-step advice on how to find the best interest rate and home loan.
Mortgage Mistake 2. Applying for a loan without checking your credit reports for errors.
Three out of every four credit reports contain wrong information that can make it more difficult to qualify for a loan or obtain the best possible interest rate.
To get a free credit report from each of the three major credit reporting bureaus, go to AnnualCreditReport.com. (Any other Web site that promotes "free credit reports" is lying. You'll have to pay.)
Each report explains how to challenge mistakes and get them fixed.
Mortgage Mistake 3. Not getting preapproved for a home loan.
This is an important reality check -- and it's free.
A lender will look at your credit history, income, savings and debts, and decide how much you're qualified to borrow.
If you can't get preapproved, or can't get preapproved for as much as you want to borrow, that's a big red flag.
Mortgage Mistake 4. Saddling yourself with payments you can't afford.
You can avoid that by looking at all of your bills and deciding how much you can comfortably spend. Include a realistic estimate for taxes, insurance and condo or association fees.
From that, calculate the amount that could be borrowed at prevailing mortgage rates. Add the size of the down payment and that should be your limit.
Don't let real estate agents repeatedly show you homes outside your price range or mortgage brokers push you to borrow more than you can afford.
Mortgage Mistake 5. Blowing all of your savings on the down payment and closing costs.
Moving in to a new home is expensive, and you'll need enough money to buy everything from furniture and curtains to lawn mowers and ladders.
Home repairs aren't cheap either, as you'll quickly discover when the central air conditioning conks out, the dishwasher spews soapy water on your kitchen floor or the roof starts to leak.
You should also have a rainy day savings account that covers at least six months of living expenses, so that you won't default on the mortgage if you get laid off or become ill and can't work.
Mortgage Mistake 6. Ignoring state programs for first-time home buyers.
Virtually every state offers some sort of assistance for first-time buyers.
From low-cost mortgages to down payment assistance and tax credits, these programs can lower monthly payments, provide cash for closing and help you seal the deal.
Mortgage Mistake 7. Missing nasty surprises in your good faith estimate.
Lenders are required to provide borrowers with a good faith estimate that summarizes all of the key terms of your mortgage, from interest rates to closing costs.
Taking a careful look at your GFE allows you to confirm that the loan you're being promised is the loan you're actually getting.
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