- May 5, 2020
- |Legal Moneylender
- 0
Buying a house can be one of the major financial decisions for anyone. Many people have different home-buying experiences. But, no matter what kind of experiences they have had, there are some of the common mortgage mistakes that you can avoid while buying a home. So, here are some of the mortgage mistakes to avoid to get your dream home.
1. Not Getting the Loan Pre-approved
As a first-time home buyer, it is essential for you to get a Loan Approval-in-Principle (AIP) to protect your deposit which can be forfeited when the bank turns down your loan application. Having an AIP saves you a significant amount of time as it narrows down your search to homes that you know can afford. Besides, sellers or agents can be more willing to engage in a negotiation with buying customers with AIPs. The last thing you want to happen is refusing to commit to the deal without your loan AIP.
2. Overlooking the Limitation
In Singapore, it is common for Singaporeans and even the PR’s to utilize the Central Provident Fund (CPF) to repay their housing loan. Choosing CPF account to finance your house loan can come up with a lot of limitations. When you approach the age of 55, to continue using the account beyond its valuation limit, up to the withdrawal limit, you need to meet the Basic Requirement Sum (BRS) in your Special Account (SA). This also includes the amount withdrawn for investment and ordinary account (OA).
When you are buying the private property with the remaining lease of fewer than 60 years, the amount of CFP you use is also lowered.
3. Ignoring the Costs Associated with a Mortgage
Some buyers look at the price tag as the only cost of buying a property. When you are purchasing the property, there are costs involved apart from the mortgage repayment. If you are using more than 30% on your income for the mortgage payment, you might not have enough to pay for the additional expenses that follow such as maintenance and repair expenses, property taxes, or utility and internet bills. Mortgage products and rates will vary from lender to lender. Make sure you keep some buffer savings for emergency purposes and also pay for the additional expenses such as origination fees, credit report fees, processing fees, underwriting fees, and so on.
4. Failing to Check the Credit Scores
Your mortgage request won’t be approved if you do not have a good credit score. Your credit score has a huge impact to help you get a mortgage loan and also determining the mortgage rate. When you ignore your credit history and score, you might be rejected for a mortgage loan and eventually miss out the opportunity to buy the lucrative investment. While you are applying for a mortgage loan, ensure that you are aware of the overall credit picture and avoid this major mistake.
5. Not Comparing the Prices Beforehand
Do you check the prices for the airplane tickets twice and then buy one? Do you compare multiple grocery stores to get the best discounts in the store? If yes, then why is it not important to compare prices and find the best mortgage plan for your dream home. Look for the features such as floating rate, fixed rate, lock-in period, partial prepayment penalty, early redemption penalty, and closing costs while buying.
6. Providing a Limited Employment History
When you attempt to get a mortgage, you need to give complete employment details. You need to prove the mortgage lenders that you will able to pay for the loan that you are borrowing the bank. Lenders are less concerned with the details of your employment history. The reason why employment history is important for the lender is to know the stability of your income, your prospects for continued employment, and the ability to repay your mortgage.
7. Seeking Advice from the Real Estate Agent
Real estate agents are the people who are good at keeping track of the real estate market. They might have the expertise and knowledge of selling properties, but they not necessarily be experts to help you advise on the best mortgage package that suits your needs. Therefore, it is always advisable to take the advice from the mortgage brokers to guide through the process. Mortgage brokers can even help you find the best-unbiased mortgage loan, help you in the loan process, and work with different banks to know the criteria to get a mortgage loan.
8. Not Understanding the Terms of the Mortgage
Don’t just sign at the document wherever the agent tells you to sign. You are doing the process of researching, comparing, and buying your dream house to get the best deal and you need to be prepared with everything and know what you are signing up for. Know what monthly payments are and how can you change the interest rate. If you can change the interest rate, you need to know when and by how much can you change. If you don’t understand what is written in the document you’re about to sign, ask your lawyer, a friend, or an expert to review the terms of the loan with you.
9. Applying for Credit before the Deal is Final
It is preferable to wait before you apply for a mortgage after you clear the new credit accounts or big expenses to your credit cards. Applying for credit can reduce your credit score and getting new loans to your monthly debt payments will increase your debt-to-income ratio (percentage of your income that goes towards your monthly debt payments). Once you have applied for a mortgage, if your lender finds the credit score has fallen or your debt-to-income ratio has gone up, they might change the interest rate or fees on the mortgage. So, do not apply to any of the things on credit before you get the key to your house in hand.
Every house-buyer has a different experience while buying a house. Making these mortgage mistakes can jeopardize your home-buying experience and get in the way of getting a home loan. So make sure you know the process right and work with the right professional who can help you throughout the process
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