Steer Clear of These Mortgage Shopping Errors
When shopping for a mortgage, it’s easy to get caught up in the excitement of purchasing a new home.
However, a hasty or ill-informed mortgage decision can cost you thousands of dollars in the long run.
To ensure you get the best deal on your mortgage, here are some common mistakes to avoid:
Failing to shop around for the best rate: According to a report from the Consumer Financial Protection Bureau, nearly one-third of mortgage borrowers only apply for a loan with one lender. This can be a costly mistake, as mortgage rates can vary widely between lenders. To get the best deal, make sure to shop around and compare offers from multiple lenders.
Not understanding the terms and conditions: Make sure you fully understand the terms and conditions of your mortgage, including the interest rate, fees, and repayment period. Don’t be afraid to ask questions and clarify any confusion before signing on the dotted line.
Not considering the long-term impact: While a lower interest rate may seem attractive in the short term, it’s important to consider the long-term impact of your mortgage. A longer repayment period, for example, may result in paying more in interest over the life of the loan. Make sure you fully understand the terms of your mortgage and how they will impact your finances in the long run.
Neglecting to check your credit score: Your credit score is a crucial factor in determining the interest rate you’ll receive on your mortgage. Before you start shopping for a mortgage, make sure to check your credit score and work to improve it if necessary.
Not considering all costs: Closing costs and other fees can add up quickly when buying a home. Make sure to factor in all costs, including appraisal fees, title insurance, and home inspection fees, when comparing mortgage offers.
Your credit score is one of the most important factors when it comes to getting a mortgage. It’s used by lenders to determine the interest rate they’ll offer you and can have a significant impact on the overall cost of your mortgage. In this blog post, we’ll take a closer look at how your credit score affects the cost of your mortgage and what you can do to improve it.
Higher interest rates: A low credit score typically means a higher interest rate. This may not seem like a big deal when you’re shopping for a mortgage, but over the life of a 30-year mortgage, a higher interest rate can add thousands of dollars to the cost of your loan.
For example, according to the Consumer Financial Protection Bureau, a borrower with a credit score of 720 or higher can expect to receive an interest rate of 3.752% on a 30-year fixed-rate mortgage. On the other hand, a borrower with a credit score of 620 or lower may be offered an interest rate of 4.706%. That’s a difference of nearly 1%!
Higher closing costs: In addition to a higher interest rate, a low credit score may also result in higher closing costs. Lenders may view you as a higher risk borrower and may charge higher fees to compensate for that risk.
Difficulty getting approved: A low credit score may also make it more difficult to get approved for a mortgage. Lenders may require a higher down payment or a co-signer to approve your loan.
Longer repayment period: In some cases, a low credit score may result in a longer repayment period. This means you’ll end up paying more in interest over the life of the loan.
So, what can you do to improve your credit score? Here are some tips:
- Pay your bills on time: Late payments can have a major impact on your credit score. Make sure to pay all of your bills on time and set up automatic payments if needed.
- Keep your credit card balances low: High credit card balances can also negatively impact your credit score. Make sure to keep your balances low and pay them off in full each month.
- Check your credit report: Review your credit report regularly and dispute any errors you find.
- Limit new credit applications: Every time you apply for credit, it’s recorded on your credit report. Limiting new credit applications can help keep your score from declining.
In conclusion, your credit score can have a major impact on the cost of your mortgage. By taking steps to improve your credit score, you can lower your interest rate, reduce your closing costs, and make it easier to get approved for a mortgage. As you can see, the benefits of a good credit score are significant, so it’s well worth the effort to take control of your finances and improve your score.
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