The 6 Worst Mortgage Mistakes You Can Make

Is your house your castle? Or a monkey on your back?

The answer might depend on your mortgage. Getting an affordable property at a great rate can make you feel as if life couldn’t be any sweeter.

But ask anyone who bought a house with a mortgage they didn’t understand and couldn’t afford, and they will likely tell you their house has brought them nothing but frustration and tears.

If you’ll be in the market for a new place soon, make sure you avoid the following six mortgage mistakes.

1. Not reviewing your credit first

You’ll need your credit score to be in great shape if you want the best terms on a mortgage.

At least six months before you go to your first open house, go to AnnualCreditReport.com. That’s the official site where you can get free credit reports issued by the big three credit-reporting agencies: Experian, Equifax and TransUnion. You’re entitled to one free credit report from each agency annually.

When you get your report, identify and correct any errors before you apply for a mortgage.

Also check your credit score. Some banks and credit cards now offer the most widely used credit score, the FICO score, as a monthly perk for their customers. If your bank or card does not, check out this article, which offers more ways to get that all-important number for free.

If you find your credit score simply stinks, learn how to boost it fast by reading “Boost Your Credit Score Fast With These 7 Moves.”

Bottom line: Spend the time to get your credit in the best possible shape so that you can get lenders’ most favorable terms.

2. Failing to get preapproved

Getting preapproved by a bank for a given loan amount is one way to avoid the heartbreak that comes from falling in love with a house that is way out of your price range. It may also give you an edge if yours is not the only offer for the same property. A seller will feel more confident selecting a bid from someone with a mortgage preapproval rather than from a person who hasn’t begun the process.

However, don’t get carried away by the preapproval amount the bank gives you. Remember, what the bank thinks you can afford and what you can actually afford may be two different things. For more, check out, “Stop and Think: How Much House Can You Really Afford?”

3. Not shopping around for the best rate

The Consumer Financial Protection Bureau says nearly half of mortgage borrowers don’t shop around, and that’s a big mistake. Seasoned shoppers search for the best deals on soap, furniture and cars, but some fail to look for a better mortgage rate.

It may be convenient to use your primary bank for a mortgage, but that could also be expensive if its rates aren’t competitive. For instance, take a 30-year fixed-rate mortgage of $200,000: For every 0.25 percent you reduce the interest rate, you save about $28 a month. Over a 30-year period that can add up to a lot of extra cash.

Go to the Money Talks News Solutions Center and start comparing mortgage rates.

4. Ignoring mortgage fees

While you’re investigating rates, don’t forget the fees. Many mortgages come packed with fees of all kinds. Some — such as your county recording fee — are likely fixed, but others are negotiable.

Before your closing, you should be provided with a good-faith estimate of the fees. Ask your lender to review what they are for and then see if you can negotiate a lower price. These are a few of the fees likely to have the most wiggle room:

  • Loan origination fee
  • Application fee
  • Broker fee
  • Underwriting fee

5. Saving too little for a down payment

Not having a down payment stashed away can sink your prospects for getting a mortgage. After being bitten by the housing market crash, traditional lenders shy away from giving mortgages to those bringing nothing to the table.

You generally need to have a down payment of between 5 and 20 percent to qualify for a conventional loan. And if you put down less than 20 percent, be prepared to pay for mortgage insurance.

6. Not understanding your mortgage terms

Underwater mortgages weren’t the only problem homeowners faced during the Great Recession. An untold number of people also lost their houses simply because they signed on the dotted line without understanding what the heck their mortgage entailed.

For example, people thought they’d hit the jackpot with adjustable-rate mortgages, known as ARMs. Homeowners were fine for the first few years while their mortgage rate was fixed and low. But when it reset to the current market rate, that affordable monthly payment suddenly wasn’t so affordable.

The moral of the story is to always understand what you’re signing up for. It’s not enough to know what your monthly payment is today. You also need to ask if the interest rate can change and, if so, when and by how much it will increase.

If you’re not comfortable with the loan terms or don’t understand them, it’s better to walk away than to make an expensive and potentially life-altering mistake.

Freddie Mac August Forecast: Housing Affordability Challenges Slowing Home Sales Growth

MCLEAN, Va., Aug. 27, 2018 (GLOBE NEWSWIRE) — Ongoing supply and demand imbalances and weakening affordability conditions, particularly in markets out West, are expected to keep a lid on home sales growth through the rest of the year, according to Freddie Mac’s (OTCQB: FMCC) August Forecast.

The U.S. economy in the second quarter grew at its fastest pace in nearly four years, but housing activity played a limited role in the expansion. New home construction, existing-home sales and sales of new homes all declined last quarter, as homebuilder challenges, limited inventory and steady price gains created headwinds for the housing market.

Looking ahead to fall, Freddie Mac expects market conditions to remain mostly the same, with a modest rise in housing starts slightly easing inventory constraints. Total home sales (new and existing) for the year are now forecasted to increase 0.2 percent, and home price growth – which has softened somewhat in recent months – is still anticipated to rise 6.0 percent.

“The housing market hit some speed bumps this summer, with many prospective homebuyers slowed by not enough moderately-priced homes for sale and higher home prices and mortgage rates,” said Freddie Mac Chief Economist Sam Khater. “These challenges were predominantly seen in expensive markets out West, where demand and sales are beginning to dampen because of weakening affordability.”

Added Khater, “The good news is that the economy and labor market are very healthy right now, and mortgage rates, after surging earlier this year, have stabilized in recent months. These factors should continue to create solid buyer demand, and ultimately an uptick in sales, in most parts of the country in the months ahead.”

Forecast Highlights

  • The robust labor market and healthy U.S. economy, forecasted to grow 2.8 percent this quarter and 2.7 percent for the year, should continue to boost consumer spending and business investment.
  • Mortgage rates jumped earlier this year, but have remained mostly flat since late May. Looking ahead, they are expected to gradually trend higher and average 4.60 percent for the year.
  • Limited inventory continues to affect home sales and prices. Total (new and existing) home sales are now forecasted to increase only modestly this year to 6.14 million, while prices are expected to moderate, but still at a pace well above inflation.
  • Slower home sales growth, as well as decreased refinance activity due to higher mortgage rates, are expected to cause single-family first-lien mortgage originations to slide around 8 percent this year to $1.66 trillion.

Freddie Mac makes home possible for millions of families and individuals by providing mortgage capital to lenders. Since our creation by Congress in 1970, we’ve made housing more accessible and affordable for homebuyers and renters in communities nationwide. We are building a better housing finance system for homebuyers, renters, lenders, investors and taxpayers. Learn more at FreddieMac.com, Twitter @FreddieMac and Freddie Mac’s blog FreddieMac.com/blog.