Applying for a Mortgage Loan: Big Mistakes to Avoid
Money is hard to come by, so you must take extra care in not wasting it due to some minor lapses in judgment. Though you can be very particular about how you spend your money on everyday expenses such as food, utilities, and transportation, this advice comes in handy when you are making a major financial decision, such as buying a house for the first time. In fact, it may be even more important to apply it to large purchases like these, because you may find yourself locked in for years in a horrible financial situation due to lack of foresight.
In this article, we will enumerate some of the most common mistakes that many new homeowners end up making, why they are so costly, and ways in which you can avoid doing the same incorrect financial decisions.
Going with Only the Absolute Minimal Payment
According to a Business Day article written by Simon Rule, a broker based in Wellington, one of the biggest financial errors that people often commit is choosing the plan with the lowest rate without considering the others at all. Just because the deal looks good at the time does not mean that it will be advantageous for you far into the future. The moment that you become locked into a long-term contract, you may have to pay for what is commonly called an early repayment fee. You may end up paying thousands of dollars just for not taking a few extra minutes to consider the other options available to you, so pick your plan wisely.
Forgetting to Factor in the Costs of Closing
When you start computing your budget for your mortgage, do not forget to factor in anything you must pay in full before the regular payments begin, and the final payment after you have finished all your monthly payments. Many first-time homeowners are blindsided by the closing costs, which are often way beyond the budget that they prepared for their monthly payments. Who can blame them? According to Money Crashers, closing costs tend to be at least 3 to 5 percent of the total balance of your loan, which you must hand over to the bank before you can finally say that the house is completely yours.
Having to Default on Any Payments in the Past
When your friends ask to borrow some money from you, what factors do you take into consideration before allowing them to? You may be the type to find out from other people if they have had any trouble paying back any debts they have had in the past. This is actually a good practice as it shows you are checking the credit history of the person trying to get a loan from you. The same can be said of banks that conduct background checks on your credit history whenever you apply for a loan. If they find out that you have defaulted on any sort of payment in the past, they may think that you will not follow through with paying off your mortgage. This may cause them to be hesitant about approving your application.
If you are fortunate enough to still have a clean record, do your best to maintain it. Do not wait until the very last minute to pay off any of your bills if possible. The moment the bank notices that you missed a recent bill, they may wonder if you are currently financially stable enough to pay off additional loans on time. If, however, you were unlucky enough to have been late on one payment in the past, how it will affect your current standing depends on how long ago it was, how much money it cost, and if it is already paid by the time you applied for a loan.
Failing to Save Enough Cash to Present a Deposit
Though many lenders used to approve applicants who did not have any down payments to offer, this is no longer the case today. The fastest way to get your loan application rejected is to waltz into a bank without even a little bit of cash on hand. Though some lenders may let you get by with a deposit below 5 percent of the total payment, most banks now require you to prepare at least a 20 percent down payment in order to be considered as a good candidate for a mortgage loan.
If you are still missing some cash to present to the bank, try your best to earn some extra income. Maybe you are skilled in some hobbies that could bring you a bit of extra cash, such as writing, designing, coding. Perhaps you have some items in your home that you no longer need and can sell for a bit of extra cash. If you are really at a loss as to how to earn enough money, you could temporarily borrow some money from your friends or your relatives. However, this is an option that you must only consider as your last resort, as you may end up piling on debt after debt in addition to your mortgage.
With this information in mind, you will be less likely to commit the same errors when searching for your own future home. If you need a little help computing how much you think you will be spending on your future home, you can try to use a housing loan calculator as provided on sites such as PropertyGuru Singapore. Remember that buying a new house is a decision that you must not take likely, and that you must take every precaution to ensure that you have gotten the best value for your money. In situations like these, there is no such thing as doing too much research or taking too much time to decide on a purchase. Once you have collected enough information on different mortgage plans and have chosen to take the plunge, we hope that you can do so with confidence thanks to the advice we have shared in this article.
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