Acquiring a mortgage is a serious responsibility. Failing to keep up with your obligations involve risks. This is why anyone who plans to apply for a home loan is advised to be cautious. If you have bad credit, finding the right bad credit home loan poses even more risks.
Consider these 7 biggest bad credit home loan mistakes:
1. Many lending companies offer loans for people with bad credit.
But not everyone offers the best deals. If you won’t spend time and effort comparing offers, you could easily get stuck with the wrong one.
2. Not preparing your credit report.
Improving your score by just a few points can make a big difference in the rates you’ll get. Even if you’ve decided to apply for a bad credit home loan, it’s still recommended to check your credit report.
3. Not getting a pre-approval.
Why is it advisable to get pre-approved first before starting the home buying process? Knowing exactly how much money you are getting will save time and effort in choosing houses that are way out of your budget.
4. Taking out a loan that you can’t afford.
Do you plan to get a bigger loan because you want to buy a bigger house? Even if you can get approved for a bigger home loan, don’t forget to consider the monthly payment. Ask yourself, will you be able to keep up with the monthly payments?
5. Looking at houses that are way out your budget.
Think twice before buying an expensive property. Even if the mortgage rate starts low, if it’s not a fixed-rate loan, your fees can balloon up at any time during your loan’s term.
6. Not checking the cost of your prepayment penalty.
The prepayment penalty is the fee that the borrower must pay if he/she wants to complete mortgage payments ahead of time. Make sure that you are aware of the prepayment penalty cost before signing up the contract.
7. Taking out a home equity loan against your first mortgage.
Unless you can submit 20% down payment, you’ll be required to pay the PMI or the Private Mortgage Insurance. You may be advised to get a 2nd mortgage to avoid the PMI but this can actually cost you even more because of the increasing interest rates.
