7 Mistakes to Avoid When Applying for a Mortgage

Moshe Farber
22, Mar 2022

So, you’re applying for a mortgage. Congratulations! If you’re feeling a bit nervous, that’s OK. We’re here to help you avoid some of the common mistakes people make when applying for a mortgage to ensure your mortgage application process is smooth, quick, and easy.

When applying for a mortgage, the first and most crucial step is making sure you’ve built up your credit and assessing your budget. You cannot begin the process until you get the big-picture financial issues figured out. 

Before you even apply, make sure your finances are in order. Assess your priorities and needs, such as budget, lifestyle, earnings, and desired location. If you haven’t already ironed all of that out yet, then we recommend you speak to one of our loan officers or a financial planner before reading any further. All of the advice that follows assumes you have already done the above. 

Reach out to an Astar loan officer today! Email info@astarteam.com or call 888-ASTAR-11 (888-278-2711) to start the loan application process.

Once you have your financial situation figured out, you can begin the mortgage application process. 

Let’s detail some of the major mistakes that are most common when applying for a mortgage to buy a property so that you can avoid them. 

  1. Not Getting Pre-Approved for a Home Loan

Many first-time homebuyers confuse getting pre-qualified for a home loan with getting pre-approved for one. Pre-qualification just refers to the fact that you’re eligible to apply for a home loan. While still helpful, the bank does not perform its normal due diligence or analyze your financial position. 

Getting pre-approved for a home loan is different. Pre-approval entails the bank verifying all of the financial information you’ve provided them and effectively offering you the specific terms of the loan you’ll be taking out. 

The reason why getting pre-approved for a home loan when buying property is important is that it gives you an accurate representation of the exact kind of loan you’ll be paying off. This gives you a better idea of what sort of property you can afford. 

In addition, it gives you more bargaining power when negotiating with potential home sellers because you can show that you already have the funding secured to buy the property. This gives the seller peace of mind, since they know that financial complications will not come in the way of the sale of the property. Shopping for homes without getting pre-approved for a home loan is a common mistake that is easily avoided.

  1. Neglecting Your Credit Score

Many homebuyers don’t think about improving their credit score before buying a property which can be a costly mistake. Your credit score is calculated by recording your financial history of borrowing and paying off loans. Simply put, paying off loans on time proves that you are a reliable borrower and, in turn, improves your credit score. 

The reason why your credit score is important is that it influences the kinds of loans and terms that lenders are willing to extend to you in the future. Borrowers with high credit can secure larger loans and lower interest rates which can save you substantial sums of money over time. Bear in mind that you’ll likely be paying off your mortgage for quite a few years, so even a slightly lower interest rate can translate to sizable savings.

To improve your credit score, make sure to pay off all your monthly bills and credit card payments. If you don’t have a credit history, applying for a credit card and paying off your full monthly balance each month can be a great way to improve your score. 

  1. Ignoring Additional Closing Fees and Expenses

Many home buyers make the mistake of not factoring in costs of buying a home that don’t fall within the property’s sticker price. 

As a home buyer, you must remember to include closing costs, property insurance, property maintenance, utility payments, and cost of living expenses in your financial calculations. 

These additional costs can add up, and you don’t want to be caught off guard. Running through these costs with your accountant or attorney is often a good practice before closing on a property.

  1. Not Working with Local Agents and Mortgage Companies

Real estate agents are an important part of the home buying process for those that choose to use one. When working with a real estate agent, many homebuyers make the mistake of hiring one from out of state that is not familiar with the local real estate market.

The same goes when working with a mortgage company or broker. In general, real estate companies that are local to the area you’re buying property in know the market best and are better positioned to put you in an advantageous position when buying a house.

Homebuyers should always cross-reference the advice of their real estate agent or broker with that of their attorney to make sure that they are not being misled. In addition, search for a real estate agent and mortgage company with a proven track record of facilitating home sales in the area you’re buying in.

  1. Not Putting Enough Money Down

Typically, securing a home loan involves making a down payment on the property you’re buying. Your down payment will vary depending on the size of your loan and your credit history. 

Many homebuyers make the mistake of assuming that they should put as little money down as possible. 

What they might not realize is that a lower down payment often means longer payment terms and greater interest rates on the loan. Instead, you should make a down payment that accommodates your financial situation and offers the most favorable loan terms possible.

  1. Waiting to Shop for Homeowners Insurance

Homeowners insurance is necessary for anyone that is financing the purchase of a home.  Many buyers make the mistake of not shopping around for the best insurance plan they can find before agreeing to buy.

Insurance payments can represent a significant cost over time when buying a property, so you want to put yourself in a position to negotiate successfully with insurance companies.

Waiting to begin that process could mean that you’ll have to accept an insurance plan that is unfavorable or expensive

Shopping early for insurance can save you money down the line.

  1. Taking on Too Much Extra Debt

Many homebuyers make the mistake of taking on additional debt while shopping for a home. 

Even if you’ve been pre-approved, racking up substantial amounts of debt can mess up your debt-to-income ratio and throw a wrench in the home-buying process.

When shopping for a home you should be mindful of expenses you’re incurring and be careful not to take on significant financial liabilities. 

This will ensure that your financial situation is stable and resilient when you’re ready to close on a property.

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