Securing a mortgage for your home is a major financial milestone. You want to ensure you choose the right mortgage and experience a smooth application and approval process. We’ve created this guide to help you avoid common mistakes so you can take a smart approach to getting a mortgage.
When you’re ready for more personalized advice, our mortgage experts are here to help.
Mistake #1: Ignoring the Full Financial Picture
It’s critically important to understand what your monthly budget will look like as a homeowner. Your mortgage shouldn’t be a big burden on your finances. Follow these tips to maintain a comfortable budget:
- Reference the 28% rule: Some experts suggest that your mortgage payment should account for no more than 28% of your income.1 You can use this as a benchmark to see what you can afford.
- Use a Mortgage Calculator: Have a price range in mind for a new home? Use our mortgage calculator to see if your price range is realistic.
- Factor in All Parts of Your Monthly Mortgage Payment: Mortgage payments typically aren’t limited to principal and interest – they usually also include homeowner’s insurance and property taxes, which will vary depending on the property’s location. Learn more about what makes up your mortgage payment.
- Add Up the Rest of Your Budget: Account for typical monthly expenses (groceries, gas, cell phone bill, etc.) and then add in planned future costs like childcare, education or retirement plans. Here’s a more detailed guide to budget setting.
- Leave Room for Emergencies: Don’t let unexpected costs knock your budget off balance. Budget some wiggle room for home repairs or other needs that arise.
Mistake #2: Getting Scared Off by the Down Payment
If you don’t have enough money saved for a 20% down payment, homeownership may seem out of reach. But you should know that there are loan programs that allow you to get a mortgage while making a smaller down payment, if you qualify.
- A Federal Housing Agency (FHA®) loan may enable you to qualify with as little as 3.5% down. It also offers flexibility on your debt-to-income (DTI) ratio, and you may qualify with less-than-perfect credit. Learn more.
- HomeReady® and Home Possible® loans are designed to grant homeownership to those with low-to-moderate income for as little as 3% down.
- Veterans Affairs (VA) loans are available to active-duty Military, Veterans and their families. Eligible borrowers may be able to put as little as zero money down. Learn more.
- U.S. Department of Agriculture (USDA) loans are available to those with low-to-moderate incomes living in less populated areas, and may enable borrowers to put no money down.
Mistake #3: Not Getting Pre-Approved**
If you’re putting an offer on a great home, there’s a good chance you’re not the only potential buyer vying for a seller’s attention. Don’t get lost in the buying crowd – make your offer stand out by adding a pre-approval letter from your lender.
- Give Your Offer Weight: Pre-approval shows sellers and real estate agents that you’re serious about buying and you’ve got the finances to back it up.
- Have a Clear Financial Benchmark: Pre-approval sets a clear financial limit on how much home you can afford so you don’t waste time during your search.
Pre-approval requires you to verify your financial situation to a lender with documentation. Your lender will also perform a detailed check of your credit history.
Newrez’s pre-approval process is quick and won’t cost you anything. Learn more about pre-approval here.
Mistake #4: Making Big Financial Changes During the Approval Process
Once your mortgage application is submitted, sudden financial changes may raise concerns for lenders, and might affect their approval determination.
- Notify Your Lender of Job Changes: Switching employers or changing to a new pay structure is material to your ability to repay a loan. Be sure to notify your lender as soon as possible if any details regarding your income change.
- Delay Large Purchases: Getting a new line of credit or buying big-ticket items like a car, furniture sets or large appliances may alter your debt-to-income ratio.
- Thoroughly Document Large Deposits: Any significant bank transfers – even between your own accounts – have to be documented to comply with underwriting guidelines.
- Delay Credit Inquiries: If you pull your credit or another party makes a credit inquiry, your lender will likely need to verify that no new debt has been incurred, which could delay or impact your loan approval process.
Here’s a visual of the typical mortgage approval process:
Mistake #5: Neglecting to Plan for Closing Costs
First-time homebuyers may forget about these costs until they’re committed to a new home, which could lead to stressful surprises at closing.
Closing costs are typically between 2-5% of the home’s purchase price and include things like appraisal fees, loan origination fees, discount points, real estate agent commissions, attorney’s fees, the title search, title insurance and more.
Make sure you’re prepared for these expenses, and know that closing costs typically vary depending on the price of the home, the property’s location and your lender, among other factors.
Newrez offers our customers perks when buying a new home, including getting $1,000 off closing costs.*
Mistake #6: Not Consulting with A Mortgage Professional
Sometimes, getting a mortgage can feel like a very impersonal transaction. At Newrez, we want to give our borrowers top-tier guidance so they truly feel they’ve found the right mortgage for their lifestyle and financial circumstances. Our mortgage experts are here to learn about your needs, answer all of your questions and walk you through your best options.
Ready to discuss your options with a Newrez loan expert? Reach out today.
FHA® is a registered trademark of the Federal Housing Administration. HomeReady® is a registered trademark of the Federal National Mortgage Association. Home Possible® is a registered trademark of the Federal Home Loan Mortgage Corporation. None of the above-mentioned companies are affiliated with Newrez LLC.
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