Buying your first home is a life changing experience. With so many steps to tackle, the process can seem overwhelming at first. This dilemma is further complicated if you are unsure of your mortgage options. If this is you, fret not because Localize has you covered. We spoke with Joshua Jones, loan expert and branch manager at loanDepot to get tips on how buyers can avoid some common mortgage mistakes and pitfalls when financing their home purchase.
Pitfall 1: Home searching without a budget in mind
It’s so easy to get caught up in the idea of finding the perfect house. We’re quick to choose our preferred neighborhoods, architectural styles, amenities, and even our dream furniture. Plus with sites like Localize, you can browse thousands of potential homes with the click of a button. While you should absolutely be excited about your home search, you shouldn’t leave out the important step of figuring out your budget.
“The best thing you as a homebuyer can do is really look at your budget, find out what you are comfortable spending per month and stay within that,” Jones advises. “Avoid stretching yourself or making yourself uncomfortable with the payment.”
Assessing your financial situation first, can also prevent you from over borrowing or buying too much house.
Pitfall 2: Not knowing your credit score
In addition to knowing your budget numbers, it’s equally important to know your credit score and thoroughly review your credit report. You’ll want to address any errors found in your report before applying for a loan.
Your credit score basically tells creditors how likely or unlikely you are to pay on time and establishes your trustworthiness as a buyer.
“The better the score, potentially the lower the interest rate,” Jones says. Adding that applicants with higher scores may have access to more loan programs and often allows buyers to put less money down.
“The biggest driving factor of score is on time payments. So always try to pay those bills on time and it will pay dividends when you are looking at buying a home.”
Pitfall 3: Assuming you must put 20% down
Another misunderstanding is that buyers must put 20% down. While it may be beneficial to put more down upfront to have a lower monthly payment, not having the full 20% won’t exclude you from obtaining financing.
“Many of us as consumers have the ability to pay a mortgage payment…but we just don’t have the large down payment,” Jones says. “Look at your budget first.”
Jones notes that each homebuyers’ situation is different and they’ll need to assess which payment options work best for their needs.
“If you did have a large down payment, but you had a comfortable monthly payment with putting only 3% or 5% down, then maybe keeping cash in your pocket is the way to go,” Jones explains. “If you did not have a large down payment that is ok. There might still be plenty of loan programs available for you.”
There are tradeoffs for opting to put less than 20% down, which could be making higher monthly payments or incurring private mortgage insurance or PMI.
“If you are comfortable with your payment and you only have 5% to put down, then the fact that you only have 5% to put down shouldn’t hold you back from buying.”
Pitfall 4: Focusing too much on rates rather than finding the right mortgage professional
In an increasingly digital world, it can be difficult to know which lending route is best. We’re bombarded with ads and the financing experience is reduced to rates and fees. While rates and fees are important, it should be noted that all mortgage lenders are competitive. The key is finding the right mortgage professional for your needs.
“What sets a mortgage professional apart from their peers is their knowledge, experience and service,” Jones notes. “Is that person going to answer your text messages or emails? Are they going to walk you through the process? Are they going to be there to help you before, during and after your loan?”
A knowledgeable mortgage lender is invaluable when purchasing a home. Find one that’s attentive and can guide you through the best options for your financial situation.
“Trust the professionals you work with and it will make your experience much better,” Jones explains. “They should be a crutch for lending advice and use them as a guide to help you succeed with financing goals.”
Joshua Jones is a leading mortgage lender and branch manager of loanDepot. Ranked in the top 1% of all mortgage lenders in the country by the Scotsman’s Guide, Jones will fund over 400 loans this year and will finish at about 120 million in production.