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What to Avoid when Seeking a Mortgage

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What to Seek When Looking for a MortgageThere are many things to avoid when seeking a mortgage. One issue to avoid is that the interest rate quoted by phone will be applied at closing, and another is to compare mortgage rates on different days. Each of these can be explained by stating that a major mistake made by many people is to ignore the fact that the mortgage market is volatile – it changes daily.

Regarding price quotes, for example, lenders are not legally obliged to hold themselves to the interest rate they originally quoted. Rates change according to the market and they also vary according your circumstances. If your prospective lenders have not asked the right questions, then you should be suspicious of any rates they offer.

It is important that you reveal your full income, the type of home you are purchasing (single-residency, detached, owner-occupancy, etc) and anything else relevant such as any other loans or debts you currently have. Even if you are provided with a mortgage offer that includes all of these factors it can be changed by the lender before closing unless you have locked it.

Avoid Activity on Your Credit Record

Other than your mortgage loan, do not apply for any other credit for 3-4 months before applying. Every application for credit is recorded on your credit record, whether it is for a credit card, store card, TV rental agreement, car loan and so on.

Most potential lenders will reject your mortgage application if your credit record shows too many recent credit checks.  Even checking up on how you would be able to borrow adds a credit inquiry to your record.

Failing to Assess What You Can Afford

May people go house hunting without have any idea how much mortgage they can afford to repay. It is a simple matter to find out how much a mortgage will cost you, yet many leave it to the last minute to be disappointed by finding they cannot afford  their dream home. Before seeking a mortgage, know what you can afford to offer.

A quick way to get a ball park figure is to calculate your total earnings and outgoings and decide how much you can genuinely afford to pay each month. Work to a debt-to-income ratio (DTI) of 28/36. This means that your total debt should not exceed 36% of your gross (pre-tax) income, and that your housing costs (mortgage repayment, homeowners insurance, housing association costs, etc) should not exceed 28% of your gross income (the 28% is part of the 36%.)

Using these DTI figures, you can assess how much of a monthly mortgage payment you can afford. With that knowledge you can use mortgage and amortization calculators to work out how much you can afford to borrow at various interest rates over specified periods of time. Make sure you take insurance and housing association costs into consideration.

This can save you a great deal of heartache and wasted time.  There is no guarantee than having done this you will then be offered the mortgage you believe you can afford.  However, you will have a more accurate estimate of what you may be offered, and of the amount you can offer for your new home.

What to Avoid when Seeking a Mortgage: Closing Costs

You cannot avoid closing costs when seeking a mortgage, but you can avoid forgetting about them. Before even making an offer, seek out a lender and ask what the closing costs might be on a property of a certain price.  That will be the price that you have calculated you can afford for a specific monthly repayment.

You must be able to make these costs as a lump sum at closing. For offer purposes, you should be able to afford all closing costs including the down payment, and also the monthly repayments on your mortgage. There are many other issues to avoid when seeking a mortgage, but if you take care of the above then you should be fine.

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