7 Mortgage Mistakes First-Time Buyers Should Avoid

It’s exciting to begin the process of buying your first home, but this isn’t a time for emotion to take over. The rational brain very much needs to be in control, and that’s especially true when it comes to arranging the mortgage. The mortgage is the biggest financial product you’ll ever buy, and knowing what to do before you undertake the process can prevent many potential problems further down the line — and make sure that you end up with a mortgage that truly works for you, both now and in the future.

In this post, we’ll outline some of the most common mistakes that first-time buyers make when it comes to getting their mortgages, so that you don’t have to make the same errors. 

Starting Looking Before Getting Pre-Approved

It’s fine to take a quick look at real estate listings websites before you’ve gotten serious about your mortgage, but if you plan to actually begin looking at places, then it’s essential to go through the pre-approval process. For one thing, real estate agents will be unlikely to speak to you anyway, and you also don’t know what price range you should be looking at until you have at least an idea of how much mortgage you’ll be approved for.

Getting pre-approved also prevents the heartache of falling in love with a property, only to discover that you can’t make an offer because you still have to get approved for a mortgage. The house-buying journey is emotional enough without giving yourself unnecessary heartbreak. 

Ignoring Credit Health

Want to get the best interest rates for your mortgage? Then it can pay — literally — to work on improving your credit score, which has a direct impact on the mortgage offers you’ll receive.

The mistake many people make is waiting until close to the last-minute before they take a look at their credit report, at which point they discover that it’s not in as good shape as they thought it was. Even if the underlying financial landscape is sound, old unpaid bills that you’ve forgotten about or outright credit errors can impact the score. These issues can be overcome, but you’ll need some time before your credit score moves upward. For that reason, it’s best to check your report around 6 – 12 months before you plan on applying for a mortgage. 

Focusing on the Monthly Payment

It’s easy — and tempting — to be drawn to the monthly payment cost of a mortgage. That’s always the figure pushed by lenders because it’s the most attractive number to borrowers.

The problem is that the monthly payment only tells part of the story. It doesn’t factor in the cost of home insurance, PMI (if required), property taxes, or how much you’ll pay in interest over the course of the mortgage lifespan. Those costs matter massively, which is why it’s important to use an in-depth mortgage calculator that provides an advanced breakdown of much you’ll actually pay. Remember — you’ll be living with the mortgage and other expenses for a long time, so it’s vital that you have a solid understanding of what they are before you agree to the purchase. 

Failing to Work With a Mortgage Advisor

Some people avoid working with a mortgage advisor because they assume that it’s another expense at a time when they’re dealing with a lot of expenses. 

But that’s not the case. Mortgage advisors are paid by lenders, not clients. However, even if you did pay the mortgage advisor, it would often still be recommended because of how much of a difference they can make to the overall mortgage cost. 

You can only get the best deal if you compare multiple offers. A mortgage advisor does that on your behalf, assessing offers from a wider range of lenders than you would be likely to check yourself. They’re also knowledgeable about any schemes that can make buying a property more straightforward, such as government schemes.

Borrowing All That’s On The Table

You might qualify for a $450,000 mortgage, but that doesn’t mean that you should borrow that amount. Lenders don’t assess what type of property you’re looking for, and make an offer that allows you to make your property dreams come true. They assess how much they can offer you from a risk perspective.

Borrowing the maximum amount offered to you leaves little room for other expenses. How much mortgage you accept should be based on the property you want to buy, plus how much you can comfortably afford. If that means saying no to a portion of what’s on offer, then so be it. 

Making Big Purchases Before Closing

Have other big purchases you want to make before closing? It’s nearly always best to wait until you have the keys in your hand. The reason is that lenders always do a last-minute check before signing off on a mortgage during closing, and if you’ve taken on considerably more debt because you bought a new car, or even just took out a new credit card, then it could change your debt-to-income ratio enough that it impacts your ability to get a mortgage, right at the last moment. 

Using All Savings For The Downpayment

The general line of thinking goes that the bigger the down payment, the more favorable the mortgage terms. Yet, while that might be true, that doesn’t mean that buyers should break their backs to come up with as large a down payment as possible.

There are many, many additional costs that come from buying a property — and there can even be many on top of those, too, in the form of unexpected expenses. Draining your savings account to pay for your down payment not only makes it more difficult to meet those expenses, but it also leaves you in a more vulnerable position. It’s best to have at least three months’ worth of mortgage payments in the bank after all the other expenses have been accounted for. Even just knowing that money is there can go a long way towards keeping your stress levels in check.