homeowner couple shaking hands with mortgage lender

Whether you're a first-time home buyer or need to refinance, it's imperative that you do some research before obtaining a mortgage. Many consumers take the first loan offered to them and end up paying thousands more than they should have. Consider the following tips which will help you to avoid costly mistakes when obtaining a mortgage on your home.

Shop Around for a Mortgage

As with any major purchase, it makes sense to shop around. Many lenders often push the loans for individuals with lower credit as there is often more of a payout for them. If you don't know what the common interest rates are for your credit score, you may find yourself cheated out of several thousand dollars during the life of your mortgage loan. By shopping around and interviewing several lenders, you can potentially save thousands of dollars.

When considering a mortgage loan, you'll also want to ask for a GFE or Good Faith Estimate from the lender. The GFE resulted from the Real Estate Settlement Procedures Act (RESPA) and was developed by HUD to help borrowers determine the cost of the loan. By asking to see a GFE, you'll be able to be locked into an interest rate for a certain period of time should you decide to go with that particular lender.

Set a Budget to Include Taxes, Insurance and HOA Fees

Another major mistake that borrowers often make is not budgeting before they take out their mortgage. In addition to the mortgage payment, a homeowner will also have to pay taxes, homeowner's insurance, and possible HOA (Homeowner's Association fees) if one buys a home that's in a development. When these fees are added on top of the mortgage payment, it can really add up. It's often beneficial to have the taxes and insurance on the home included as part of the mortgage payment.

Don't Spend All of Your Savings on the Down Payment

A huge mistake that many borrowers make is spending all of their cash on the down payment. Doing this may cause them to not have enough money at closing for the various fees that may be charges and may cause them to not have money for any type of an emergency. Always be aware of all fees associated with your loan before deciding how much to put down. In addition, have at least three months income in the bank for emergencies such as a layoff.

Don't Borrow More Than You Can Reasonably Afford

You'll often find that lenders will over-approve individuals for loans. The borrower then takes out a loan more than they can afford. Many first-time home buyers find that owning a home is more expensive then they had planned on. In order to make the mortgage payment, they give up on things like retirement savings and vacations so they do not default on their loan. The lender doesn't care what a homeowner has to give up; they only care that the loan is paid.

These, of course, are only a few of the potential mistakes you can make when obtaining a mortgage. To get the best terms, try to repair any issues with your credit to help you qualify for a lower-interest loan. You also want to make sure you're in complete understanding on all of the terms of the loan. Do the required research, and you'll find the ideal loan for you.