2018 is shaping up as a pretty good year for homebuyers. The nation’s homebuilders are building more, the nation’s banks are lending more and the home price increases we’ve experienced over the past few years are expected to moderate.
There are a couple of negatives as well: interest rates are going up and the new homes that are being built are more expensive due to rising material costs and rising labor costs caused mostly by a shortage of skilled workers. The other side of the coin, however, shows that interest rates remain historically low (around 4.5% currently) though not as low as they were a few years ago, and homes priced for first-time buyers should open up on both the resale and new housing markets.
If you are planning on jumping into the housing market, the odds are nearly 100% that you’re going to be shopping for a mortgage. This can be even more stressful and complicated than shopping for the right house.
But the experts at Realtor.com say it doesn’t have to be if you plan ahead and do everything you can to avoid these six common mistakes.
Don’t wait until you can make a 20% down payment. Although a 20% down payment allows you to avoid paying for primary mortgage insurance (PMI), the insurance adds only about 0.3% to 1.15% to your monthly payment. Take advantage of the low mortgage interest rates now to minimize the impact. Remember, mortgage rates are rising and will be ticking higher all year, according to most forecasts.
Don’t talk with just one mortgage lender. Getting a mortgage is in fact shopping. One lender may make a better offer than another, and even small differences in the rate you actually pay (including PMI and other costs) can make a big difference in how much you pay over the life of the loan and in your monthly mortgage payment.
Don’t get pre-qualified, get pre-approved. The difference between these two items is more important than it may seem. Pre-qualification means a lender has talked to you about a loan but you have not had to prove any of the things you say. Pre-approval means that a lender has run a credit check on you, verified your income and assets and given you a written commitment for a mortgage up to a specific amount.
Don’t move your money around. If you have been pre-approved for a mortgage loan, that means that you have not only disclosed your cash assets but told the lender where they are. When you make an offer on a home, the loan still needs to be underwritten and underwriters want to see that your finances have not changed. This warning applies to moving cash in as well as moving it out.
Don’t apply for new credit cards or credit limits. Not only can such requests lower your credit score, they may indicate to your mortgage lender that you are desperate for more cash. That could mean that you cannot afford the monthly mortgage payment — and that could lead to a change in the terms of the mortgage loan, or worse.
Don’t change jobs. Most lenders look for at least two years of employment with the same firm. A sudden change while the home you have offered to buy is under contract can raise a red flag to the lender. If at all possible, wait until after you close on the sale to change jobs. If that’s not possible, get your new employer to provide written verification of your new job, your title and your new pay.
Visit the Realtor.com website for more details and commentary.