To err is human. To err on your mortgage, however, is costly. Many homeowners make common mistakes regarding their home loans. These easily can be avoided if you're aware of the most common mortgage errors.
The rich get richer because they get smarter. They educate themselves on financial matters, and then apply that knowledge to their respective financial situations. You can do the same thing by learning what NOT to do when looking for a home mortgage.
1. Shopping shortsightedness
This simple concept is often neglected, even by consumers who clip coupons and buy only things that are on sale. Perhaps it's the size and complexity of the mortgage that makes homeowners reluctant to call a variety of different lenders and compare rates, terms, and closing costs. It's a costly error. Finding the best deal on a mortgage can save you thousands of dollars in interest.
2. Saying no to your credit report
Lenders will extend loans with the best interest rates only to borrowers who have superior credit scores. Therefore, it's important to thoroughly analyze your credit report before you start shopping. Reviewing your credit report enables you to spot any errors made by the credit bureau or a past creditor. These mistakes can lower your score.
3. Living above your means
Conventional wisdom used to say that over-extending yourself on a home mortgage was acceptable. The logic was that your income would eventually rise, and the home would also appreciate in value. However, the shaky economy, and shrinking home values in today's recessed real estate market, have put that school of thought to rest. A more prudent homeowner will carefully analyze his income, and make sure he can comfortably afford the payment.
4. Keeping your mouth shut
Despite the recent credit crunch in the marketplace, borrowers still have leverage. If you don't like the specifics of a loan, you have the power to tell the lender what you'd like changed. If a lender wants to tack on a prepayment penalty to your loan, for example, tell them you want it removed. (A prepayment penalty is a fee charged when you refinance your mortgage within a certain period.) If you have poor credit, this type of fee may be unavoidable, but it doesn't hurt to shop around for a lender who'll remove the stipulation upon request.
5. Living dangerously
The recent upheaval in the subprime mortgage market should send a clear signal to borrowers: Assume the worst-case scenario with your new home loan. If you take out an adjustable-rate or balloon mortgage, make sure that you're aware of the worst-case scenario. The many subprime homeowners who were recently foreclosed upon will tell you that this nightmare scenario can come true.
Getting smart about financial matters is not a surefire way to get rich, but it can help you avoid some critical money mistakes. The more you know about common mortgage errors, the easier it will be for you to avoid them.