As a first-time home buyer, it’s natural to be confused, and perhaps even overwhelmed, by the home buying process. While finding your first home can be a daunting task in itself, finding the perfect mortgage to finance your purchase can be even harder. Some lenders try to take advantage of the naiveté of first-time buyers, and many new homeowners end up falling into predatory lending traps with sky-high interest rates and payments to match. At LGI Homes, we firmly believe that homebuying should be attainable for everyone, and our home prices clearly reflect our commitment to affordability. However, our prices aren’t the only way we try to save our buyers money – we also make it a priority to educate our customers about the homebuying process to ensure they obtain the best deal possible. Today, we’re going to discuss some of the most common mortgage mistakes made by first-time homebuyers so you can avoid making them yourself.
Not Understanding Mortgage Types and Terms – While mortgages are similar to auto loans, student loans and other types of loans, they shouldn’t be treated the same. Your mortgage is probably the largest chunk of debt you will ever acquire in your lifetime, and it’s essential that you fully understand what you’re getting into before you sign on the dotted line. Spend time browsing real estate websites (including ours!) and learn as much as you possibly can about common real estate terminology and mortgage terms. Learn the difference between fixed-rate and adjustable-rate mortgages and figure out which type is best for you. Research how the length of your mortgage can affect your monthly payments and calculate how much you can realistically afford to pay. The more you know, the better equipped you’ll be to meet with potential lenders and the better you’ll understand the terms they offer you on a loan. Being well-versed in terms and types will also prevent you from getting scammed or taken advantage of by a predatory lender.
Overlooking or Ignoring Interest Rate Changes – Many first-time buyers make the mistake of thinking that today’s mortgage rates are guaranteed to be the same tomorrow. Unfortunately, interest rates often fluctuate throughout the week – and sometimes even throughout a single day. To avoid missing the mark and getting stuck with a higher rate, U.S. News recommends that buyers watch the market closely and pay attention to when rates change each day. According to U.S. News, rates tend to change at the same time every day, and knowing the right moment to start negotiating with lenders is imperative for obtaining a great rate.
Not Shopping Around – You may be tempted to give your bank or credit union a call and immediately apply for a mortgage through them because you have experience working together. However, your bank isn’t guaranteed to offer the best rates available. Spend plenty of time shopping for and comparing lenders to see how they stack up against your financial institution of choice – and against each other. You may find that another bank can save you big in the interest department over financing through the same institution you save your money with.
Failing to Negotiate – According to U.S. News, 34% of home buyers don’t realize that mortgage rates aren’t necessarily set in stone and that they have the ability to negotiate with potential lenders. Instead of whipping out your pen and immediately agreeing to whatever interest rate your lender offers, see if you can talk them down. If you’ve done your homework and shopped around, tell the lender you’ve looked at other companies and have been offered a better deal elsewhere that you’re tempted to take. The lender might not budge, but you may be pleasantly surprised and receive a great counteroffer from potential lenders to help you save.
Misunderstanding How Mortgage Points Work – According to U.S. News, nearly 50% of homebuyers don’t understand how mortgage points work. 45% of buyers polled in a survey by Zillow believed that mortgage points should always be purchased with a mortgage so a lower interest rate can be obtained later. However, this isn’t always best for everyone. If you plan to settle down in your new home until your mortgage is paid off, it’s certainly a good idea, but if you only plan to stick around for a few years, it can actually cost more to purchase discount points than you’ll save.