Buying a new home, whether it’s your first or your tenth, is never an easy process. Aside from everything you need to think about when comparing rates and offers from different lenders, there are all kinds of laws and regulations you need to understand. While it’s easy to get swallowed up in all the documents and legalese, it’s very important to ensure you’re not making various costly mistakes. Here are some of the biggest mortgage pitfalls homebuyers need to look out for.
Adjustable Rates
With adjustable rates being so commonplace with modern lenders, you may be surprised to see this leading the list. The issue with these is that they can start off low and affordable, and then jump sharply a few years down the line, presenting a serious financial strain to the buyer. It’s pretty common for people to get tempted in by the prospect of a large house for payments which they can easily afford, and then find themselves trapped with much higher payments a few years down the line. This, in turn, usually leads to them bleeding the equity out of their home, and refinancing or renewing it at a lower rate. Of course, this isn’t exactly helpful when housing prices drop and the home’s equity evaporates without them noticing! If it’s too late for you to avoid this pitfall, at least make sure you understand what the whole refinance vs renewal debate means for you.
No Down Payment
On the surface, being able to get a home with no down payment is a very tempting prospect. However, I urge you not to take the bait! When you look at the big picture, a down payment is an important financial tool which can be exceedingly useful to the homeowner who makes it. First of all, making a down payment bumps up the equity you have for your home right from the outset. This will grind down the overall amount you need to pay off, as well as your monthly mortgage payments. Secondly, if you make a larger down payment, you’ll greatly improve your odds of getting the home in a multiple-offer scenario. As tempting as it may be to move into a home without putting down any money, it’s almost always better to put it off for a couple of years, save for that down payment, and then make it.
Liar Loans
This is perhaps the most dangerous pitfall of all, especially for first-time buyers. If you weren’t already aware, a “liar loan” is where someone lies to inflate their income in order to get a larger home, which they can’t really afford when you do the math. The issue usually only comes to the surface once everything’s been signed and the liar in question is living in the home. It may sound obvious, but you need to make those mortgage payments with the money you have, not the money you wish you had or almost have. If you start to fall behind because you’re simply not earning enough, it’s only going to lead to foreclosure or bankruptcy.
