Even with foreclosures, bankruptcies, and financial crises on the rise, borrowers are still attempting to go beyond their financial limits when they qualify for a home loan. This is the top-of-the-list worst mistake a borrower can make.
Here are some additional huge mistakes borrowers can make in today’s market:
- Adjustable Rate Mortgages (ARM)
An ARM may sound like one of the best ways to pay off mortgage and borrowers often think that the adjusting interest rate will stay low for the next few years, so why not splurge on the house a bit? The problem is that the interest rates fluctuate with the market and have the potential for steeper mortgage payments.
Some other contributing factors that impact the ARM is if during the mortgage term the home values drop? This can erase the equity of the house and then it could actually disqualify a borrower for a refinance.
- No Down payment
Borrowers are often seduced into a mortgage after being told they do not have to pay a down payment for their home. What an amazing way to buy a dream house—without a single cent! The catch is that without putting down any money in the early stages of a mortgage, a borrower then should not be surprised to find overwhelming figures that will need to be paid and lengthy payment terms. This type of offer on a mortgage can lead to a borrower paying up to two times the amount of the original loan.
- Quick Close Loans
Who wouldn’t want quick loan without the fuss? Perhaps it’s the third most appealing campaign to get a loan. A borrower wants a home, as soon as possible. But with the stricter policies and documentation requirements imposed by many lending institutions, the borrower wouldn’t have the time, the capacity, or even the qualifications to comply with them. When an offer for a “quick loan without the fuss” is presented, many borrowers tend to buy the line immediately. That is why, perhaps, this mode is termed “liar loans.”
- Reverse Mortgages
There has been an on-going feud between pro-reverse mortgage and anti-reverse mortgage. Reverse mortgages are designed for senior citizens, where the home’s equity is used as the senior’s main income source. The catch is that the fees and interest included in the Reverse Mortgage are taken from the equity of the house.
When it comes to buying a home it is better to avoid these pitfall mistakes and instead, take your time researching, saving, and purchasing this lifetime investment in the wisest manner possible.
