Getting a mortgage is, by general consensus, the most treacherous part of buying a home. In a recent survey, 42% of home buyers said they found the mortgage experience “stressful,” and 32% found it “complicated.” Even lenders agree that it’s often a struggle.
If you’re out to buy a Boston condo, you have to be vigilant. To clue you into the pitfalls, here are six of the most common ways people mess up getting a mortgage.
Waiting until you can make a 20% down payment
A 20% down payment is the golden number when applying for a conventional home loan, since it enables you to avoid paying private mortgage insurance (PMI), an extra monthly fee of 0.3% to 1.15% of your total loan amount. But with mortgage rates where they are today—in a word, low—waiting for that magic 20% could be a huge mistake, since the more time passes, the higher mortgage rates and home prices may go!
All of which means it may be worth discussing your home-buying prospects with lenders right now. To get a ballpark figure of what you can afford and how your down payment affects your finances, punch your salary and other numbers into a home affordability calculator.
Meeting with only one mortgage lender
According to the Consumer Financial Protection Bureau, about half of U.S. home buyers only meet with one mortgage lender before signing up for a home loan. But these borrowers could be missing out in a big way. Why? Because lenders’ offers and interest rates vary, and even nabbing a slightly lower interest rate can save you big bucks over the long haul.
In fact, a borrower taking out a 30-year fixed rate conventional loan can get rates that vary by more than half a percent, the CFPB has found. So, getting an interest rate of 4.0% instead of 4.5% on a $200,000, 30-year fixed mortgage translates into savings of approximately $60 per month, or $3,500 over the first five years.
So to make sure you’re getting the best deal possible, meet with at least three mortgage lenders. You’ll want to start your search early (ideally, at least 60 days before you start seriously looking at homes). When you meet with each lender, get what’s called a good-faith estimate, which breaks down the terms of the mortgage, including the interest rate and fees, so that you can make an apples-to-apples comparison between offers.
Getting pre-qualified rather than pre-approved
Mortgage pre-qualification and mortgage pre-approval may sound alike, but they’re completely different. Pre-qualification entails a basic overview of a borrower’s ability to get a loan. You provide a mortgage lender with information—about your income, assets, debts, and credit—but you don’t need to produce any paperwork to back it up. In return, you’ll get a rough estimate of what size loan you can afford, but it’s by no means a guarantee that you’ll actually get approved for the loan when you go to buy a home.
Mortgage pre-approval, meanwhile, is an in-depth process that involves a lender running a credit check and verifying your income and assets. Then an underwriter does a preliminary review of your financial portfolio and, if all goes well, issues a letter of pre-approval—a written commitment for financing up to a certain loan amount.
Bottom line? If you’re serious about buying a house, you need to be pre-approved, since many sellers will accept offers only from pre-approved buyers, says Ray Rodriguez, New York City regional mortgage sales manager at TD Bank.
Moving money around
To get pre-approved, you have to show you have enough cash in reserves to afford the down payment. (Presenting your mortgage lender with bank statements is the easiest way to do this.) Nonetheless, your loan still needs to go through underwriting while you’re under contract for your loan to be approved. Because the underwriter will check to see that your finances have remained the same, the last thing you want to do is move money around while you’re in the process of buying a house. Shifting large amounts of money out or even into your accounts is a huge red flag, says Casey Fleming, mortgage adviser and author of “The Loan Guide: How to Get the Best Possible Mortgage.”
So if you’re in contract for a home, your money should stay put.
Applying for new lines of credit
If you apply for a new credit card or request a credit limit increase a few months before closing, watch out: Credit inquiries ding your credit score by up to five points. So, don’t let the credit inquiries add up.
Mortgage lenders like to see at least two years of consistent income history when pre-approving a loan. Consequently, changing jobs while you’re under contract on a property can create a big issue in the eyes of an underwriter.
Your best bet? Try to wait until after you’ve closed on your house to change jobs. If you’re forced to switch before closing, you should alert your loan officer immediately. Depending on the lender, you may simply need to provide a written verification of employment from your new employer that states your job status and income, says Shashank Shekhar, the founder and CEO of Arcus Lending in San Jose, CA.
– By Daniel Bortz, Realtor.com
Consider me your #1 resource for all things regarding Boston condos for sale! Household changing? Getting married (or divorced)? Time for a change of scenery or job relocation? Want to invest? Just send me an email at email@example.com or call 617-595-3712 – I can help.
Boston condos for sale
Back Bay Boston condos for sale
Beacon Hill Boston condos for sale
Charlestown Boston condos for sale
Navy Yard Charlestown Boston condos
Dorchester Boston condos for sale
Fenway Boston condos for sale
Jamaica Plain Boston condos for sale
Leather District Boston condos for sale
Midtown/Downtown Boston condos for sale
Seaport District Boston condos for sale
South Boston condos for sale
South End Boston condos for sale
Waterfront condos for sale
North End condos for sale
West End condos for sale
East Boston condos for sale
Boston condos to rent:
Back Bay area condos for rent
Beacon Hill area condos for rent
Charlestown area condos for rent
Navy Yard Charlestown area condos for rent
Dorchester area condos for rent
Fenway area condos for rent
Jamaica Plain area condos for rent
Leather District area condos for rent
Midtown area condos for rent
Seaport District area condos for rent
South Boston area condos for rent
South End area condos for rent
Waterfront area condos for rent
North End area condos for rent
West End area condos for rent
East Boston area condos for rent