The Biggest Mistakes People Make When Shopping for a Mortgage Loan

There’s nothing like the moment when you’ve found your dream home. It’s easy to get caught

up in the excitement and make moves to finalize everything as quickly as possible. And

while timeliness is important, it can lead to mistakes that end up costing you thousands. 

Here are the four biggest mistakes people make when securing a mortgage loan. 

Mistake #1 — Not Shopping Around for Mortgage Offers

It's tempting to go with the first mortgage offer you receive, especially when you're eager to close the deal on your new home. According to a LendingTree study, the majority of people (54%) do just that—they only get one offer. Most Buyers are unaware that they have a 45 grace period to apply with multiple lenders and have the routine credit check performed from all, but only count as a single hit on their credit report. Once you start the process, keep up the momentum and don't wait!

Jacob Channel, Lending Tree senior economist, explains why this is a mistake. “Different lenders can offer different rates to the exact same borrower. With that in mind, the first rate you’re offered may not be the lowest one you can get. The more offers you can look at, the better.”

Think about it: if you only go to one store to compare prices, wouldn't you miss out on potential savings? The same goes for mortgages!  Different lenders offer different rates, and even a small difference in interest rate can translate to significant savings over the life of your loan. The same LendingTree study found that 45% of those who did shop around for a mortgage ended up with a better offer. This means almost half of the buyers who took the time to compare multiple offers saved money. 

I once had clients find a resource online for a lender that was charging them an additional $13,000 in closing costs towards points to lower the interest rate they were quoted. This was in the fine print and felt like a bait and switch to these Buyers. I encouraged them to shop around and compare to other lenders. They were able to get just about the same interest rate from another lender without paying those extra fees! It pays to take your time and find the best option for your home purchase situation.

Mistake #2 — Relying Solely on Recommendations

It's great to trust your real estate agent's recommendations. After all, we work to build strong relationships with lenders and vendors to best serve our clients. However, if your agent only recommends one lender, it can limit your options. Each lender will have different options and tools for securing a mortgage. 

After an inital conversation with any prospective Buyer client, I learn about their needs and financial situation so I can offer the appropriate resources. I always like to refer a few lenders for my clients to speak with. Not only will they have different programs and pricing to offer but its a good idea to also find the right teammate and service fit for you in the process. You'll communicate with the lender a lot in the home search and closing process so you want to feel comfortable calling them and asking questions.

Aim to get at least two different mortgage offers to compare. Diversifying your lender options can help you find competitive rates and better terms.

Mistake #3 — Ignoring Different Loan Types

Not all mortgage loans are created equal. Beyond the typical 30-year fixed-rate mortgage, there are various loan types like adjustable-rate mortgages (ARMs), FHA loans, VA loans, and USDA loans, each with its benefits and drawbacks. Ignoring these options might mean missing out on a loan that could better suit your financial situation.

This is another reason that it’s important to shop around. Each lender may have access to different types of loans. Discussing all of them will help you understand which one aligns best with your circumstances. Not all loan programs require 20% downpayment and many are available to Buyers with as little as a 3%-5% downpayment requirement. Special loan programs are offered to first time home buyers and often include downpayment assistance that may or may not need to be paid back.

Mistake #4 — Not Considering Future Financial Plans

When choosing a mortgage, consider your long-term financial plans. Are you planning to stay in the home for a long time, or might you move before 10 years is up? This can influence which type of mortgage loan (i.e., fixed vs. ARM) is a better option for you. Additionally, think about how your income might change over time and whether you might want to make extra payments to pay off the mortgage faster.

Aim to align your mortgage choice with your future financial goals to ensure you're making the most strategic decision.

Conclusion

Securing a mortgage loan is a significant step in the home buying process, and avoiding these common mistakes can save you time, money, and stress. Remember—it all starts with shopping around! By doing so, you'll be well on your way to getting the best mortgage deal possible.

Do you need some recommendations on vetted mortgage lenders in Washington State? Contact me and I will connect you!

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