Don't Make These Mortgage Mistakes That CAN Cost You!

Buying a new home is usually the largest and most expensive purchase you can make in your lifetime. And taking out a mortgage is a huge decision. A little bit of wisdom and a lot of planning can help you avoid these costly mortgage mistakes when planning for your Beracah Homes home.

1. Spending too much. The first rule of determining how much you can afford is to spend less than 28% of your pretax income on housing. Committing too much of your monthly income to housing-related costs means that you have little or no money left over for anything else – known as being house poor. Where you live, how much you make, and other circumstances can make a big difference in how much of your income you can commit to housing.

2. Not checking your credit. You need your credit score to be in great shape if you want the best terms on a mortgage. Checking your credit report with all three major credit bureaus is free through annualcreditreport.com. It's important to examine credit reports carefully, because mistakes could lead to a higher mortgage rate or even loan rejection. If possible, check your credit report six months to a year before you apply for a mortgage to give yourself plenty of time to fix errors and make changes that will improve your score. Using less than 20% of your available credit card limit each billing cycle, paying down loans with large balances, and making all of your loan payments on time are easy ways to improve your credit score.

3. Not shopping around. People comparison shop for almost everything else, but not for the largest purchase they’ll ever make? Devoting a little time to finding the best possible mortgage can save tens of thousands of dollars in fees and interest over the life of the loan.

4. Ignoring the APR. Lenders advertise low interest rates but may make up for them with high fees. Homebuyers need to compare annual percentage rates from lenders' truth-in-lending disclosure forms to see which mortgage really costs the least. The APR includes lender fees and shows the loan's true cost.

5. Not understanding mortgage terms. Make sure you 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.

6. Not having a down payment. In general, you 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. Although borrowers pay the premiums, mortgage insurance protects the lender; not them. If the borrower fail to make the payments and must be foreclosed on, the mortgage insurer will cover a percentage of the lender's loss.

7. Not going with a VA loan if you qualify. Millions of veterans, and those on active duty, including the National Guard and reserve units, are eligible. The VA makes sure buyers don't overpay for a home and that it's move-in ready, without any costly, unexpected problems. It requires no down payment on purchases up to $417,000 in most areas, and charges no mortgage insurance. Interest rates are very competitive, even if you have relatively poor credit and lots of debt. The only financial drawback to a VA loan is what's called the funding fee, which can range from 1.5% to 3.3% of the amount borrowed. The fee can be added to the loan, so you won't have to pay for it up front. If you have a service-connected disability, the funding fee is waived.

8. Paying your mortgage off before other debt. Although the idea of owning your home free and clear is appealing, it’s not smart to put more money toward your mortgage than toward your higher-interest debt, such as credit cards. Credit card interest rates can be as high as 25%, whereas a home loan may only be at 5%. Plus, credit card interest is not tax deductible.

Beracah Homes specializes in custom designed homes Delaware, Maryland, Virginia, New Jersey and Pennsylvania. Located in Greenwood, DE, Beracah Homes is a pioneer in "off-site, stick built" construction.