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Mortgage Mistakes to Avoid when purchasing a Boston condo in 2022.

For most people, buying a Boston condo for sale could be one of the largest financial decision you’ll make in their lifetimes. It’s not a deal easily undone once the final papers are signed, so it makes sense to understand the ins and outs of mortgages before taking the leap into homeownership. Here are six mortgage mistakes to avoid (and what to do instead).

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1. Draining Cash Reserves for a Down Payment on a Boston Condo

Boston condominium buyers typically put down 20% of a home’s purchase price to eliminate mortgage insurance and keep monthly payments low. But draining every bit of cash from your savings is a big mistake, especially when there are additional home-buying costs, including:

  • A home inspection
  • Closing costs
  • Home insurance

What To Do Instead

Add all of the expected costs of buying a home, then calculate the down payment percentage you can afford. Don’t forget to account for major purchases, such as furniture or appliances, you might need to make immediately. You can always make an extra mortgage payment or add to the principal each month, but starting out with no cash on hand is a major mortgage mistake. 

2. Not Getting Pre-Approved for a Boston Condo

Picture this: You find the home of your dreams, and it’s within your budget. Turns out, it’s also the home of someone else’s dreams. In a tight market, making an offer loaded with contingencies, such as mortgage approval, isn’t likely to make you successful. 

What To Do Instead

Get pre-approved for a mortgage. This makes you more competitive when you’re up against another buyer. If you’re a veteran, look to the Veterans Affairs office for pre-approval too. Its rates may save you money in closing costs and help you get more home for your money.

3. Choosing the First Bank That Approves Your Boston Condo Loan

In a rush to get pre-approved, you might decide to go with the first bank that says yes. But the rate could be higher than other banks or mortgage providers. Credit unions, smaller banks, and online mortgage lenders can have dramatically different rates and fees. 

What To Do Instead

Shop around to get the best mortgage rate. It could save you hundreds of dollars a month and thousands in closing costs. Make sure you understand your mortgage, including the type of loan you’re approved for, the length of the loan, and its rate. 

4. Buying Too Much Condo/House

It can be exciting to see how much you’re approved for, but one of the biggest mortgage mistakes is shopping for a Boston Back Bay condo that hits the top of your budget. Many new home buyers don’t realize that what they pay toward principal and interest is just half of their monthly mortgage payment. They fail to recognize that property taxes, homeowners insurance, and, sometimes, mortgage insurance are also included. Unexpected expenses can be hard to meet when you borrow up to your limit.

What To Do Instead

Your total mortgage payment shouldn’t be more than 28% of your monthly pre-tax income. If you make $100,000 a year before taxes — just over $8,000 a month — your mortgage payment should be roughly $2,300. Ask your mortgage lender about the best budget for you. 

5. Paying Full Price for Boston Condo for Sale Commission

Another mortgage mistake is paying full-price commission to a real estate agent. The average commission rate is about 5% of the sale price, which can deduct thousands from your potential profits. But Boston condo for sale commission rates aren’t standardized or set in stone. You can negotiate for lower rates. 

What To Do Instead

Work with a low-commission Boston real estate company that negotiates with agents to procure a full range of services for a fraction of the traditional price. You’ll still get an opportunity to ask your Realtor questions and choose the one who’s best for you. The only difference is you’ll pay less for their services in the end.

6. Review Fees When Buying a Boston Condo

If you look closely at the closing paperwork, you’ll notice several additional costs. These might include: 

  • Loan origination fee
  • Application fee
  • Broker fee
  • Underwriting fee
  • Sign-up fee
  • Document preparation fee
  • Messenger fee

What To Do When Buying a Boston Condo

Talk to your Realtor or mortgage lender to see if these fees are negotiable or truly necessary. Bottom line? Take a close look at the closing documents before you sign. 

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Whether you’ve applied for a Boston condo mortgage or are in the process of applying, it’s important to stay vigilant with your finances and not make any big changes until the transaction has gone through.

To be safe, we recommend speaking to a mortgage professional throughout the process and get their advice before making any significant changes that could affect your credit.

Here are some general areas to be aware of when applying for a Boston condo mortgage:

Don’t make large purchases on credit before buying real estate

When applying for a mortgage it’s important to ensure that you avoid making any large purchases on credit. Things such as a car, furniture, jewelry, or other large luxury items should be avoided.

Any new debt will most likely include new monthly obligations, which can result in a higher debt-to-income (DTI) ratio and make for riskier loans. So even if you have already qualified for a mortgage, you will no longer qualify due to your new DTI ratio.

Don’t change your job before buying real estate

Mortgage lenders put a lot of focus on employment history and will not only verify the jobs you’ve had, but will look closely into your last two years of employment. The purpose of this is to make sure that you have a good source of income in order to be able to repay your loan.

Lenders will be tracking any changes to your annual income so if possible, refrain from changing jobs or altering how you are paid. You will also want to avoid switching to self-employment during this time, or if you must, consult a mortgage specialist. 

If you absolutely must change your job, one tip is to make sure that it is within the same industry, and part of your long-term career plan so that you can easily justify the move.

Don’t apply for new credit or close existing credit accounts

Once you’ve applied or have been approved for a mortgage refrain from applying for new credit or credit cards. This will affect your credit score and can impact the interest rate or even eligibility of the mortgage you’ve been approved for.

Also, be careful not to close any credit accounts during the loan process as a good portion of your score comes from your credit history.

Don’t make large cash deposits before buying real estate

Having large amounts of cash in your bank account can sometimes act against you in the process of applying for a mortgage. Cash is hard to trace and your lender will need a source for the money. Unexplained deposits can sometimes look like you took a loan or received a cash advance in order to add money to your account.

Discuss the proper way to document transactions with your mortgage advisor, and be prepared to show proof of where all your funds have come from.

Don’t co-sign on other loans

Co-signing means you are agreeing to pay off someone’s debt when that person fails to make a payment. This is an automatic red flag for a lender and will affect your eligibility to get a mortgage.

For more information on applying for a mortgage in Whistler, contact one of our local Realtors who can assist you in the process and make recommendations of local, trusted lenders.

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Updated: Boston Real Estate Blog 2022

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