You’ve finally decided to build that house you’ve always dreamed of. Amid all the excitement of choosing a house plan, picking a builder, and deciding on locations, it can be easy to allow other important decisions, such as financing your build, to take a back seat. While focusing on financing your build may not be the most exciting thing, neglecting to give it proper attention can be costly. Here are 9 log home financing mistakes consumers often make, but should be avoided.
1. Overestimating the amount you can spend on a house
You should know approximately how much you can afford to pay for a house before you begin planning your home build. There are many factors that determine how much you can spend: your income, the mortgage terms available at that time, and your existing indebtedness, just to name a few. You should also ask yourself if you feel comfortable pushing your buying power to the limit (building as much house as you can possibly afford), or if you would prefer to scale your build back.
2. Lying on your loan application
Lying on your loan application (and, yes, this does include exaggerating your income) is a federal offense. Should your lender discover you have been less-than-truthful on your application, they can call your loan due and payable. Remember that you, as the borrower, will ultimately be hurt—and it could come in the form of a loan payment you can’t afford!
3. Shopping different lenders on different days
You must shop all prospective lenders on the same day. Most mortgage lenders change their prices daily, due to market volatility. It is, therefore, a waste of your time to compare a price you receive Tuesday with one received Monday. Utilizing the internet will help keep you abreast of current rate information, and will also assist you in comparing various lenders’ prices.
4. Deciding on the wrong mortgage
While it is much easier in today’s world to refinance, you still don’t want to be burdened, even briefly, with the wrong type of mortgage. Do not assume that your lender will automatically set you up with the mortgage that is best for you. Investigate your options on your own, making sure to look at both initial and future interest rates, monthly payments, and prepayment penalties.
5. Confusing the terms “Pre-Qualified” and “Pre-Approved”
Both terms can be rather misleading, and even lending professionals are often uncertain about their definitions. The term “pre-qualified” means that the lender uses the information you have provided to make an educated guess about how much house you can afford. The term “pre-approved” means that the lender has verified the information you have provided and is willing to lend you a certain amount of money at certain interest rates. Always ask how a prospective lender defines these terms and what additional steps, if any, are required to obtain a loan.
6. Having too much credit
We all know that having too little credit (or, worse, bad credit) can sink your chances to obtain an affordable mortgage. Few people understand that too much credit—too many car loans, credit cards, etc.—can be just as bad. In a lender’s eyes, the more credit you have, the less credit you have still available to you. So, if you’ve had your eye on a new boat to go with your new house, wait until after you’ve signed your mortgage papers.
7. Neglecting to research potential contractors
Before hiring a contractor to build your home, do your research. Contact his or her references, check with local building suppliers, and call the local Better Business Bureau. Remember that word travels fast. Just as you have probably heard about which lenders you should use, those lenders have heard which contractors are reliable and which are not. Hiring a trusted, reliable contractor can help you to secure an affordable loan. Lenders will be much more likely to finance a build if they feel comfortable that the build is in good hands.
8. Hiring the wrong real estate agent to sell your existing house
Many consumers use the money they make from selling their existing house, as a down-payment on their new mortgage loan. Choosing the right real estate agent can have a big impact on the amount of money you receive from the sale of your home. Ask prospective agents how they plan to market your house, how much you should ask for it, and what you can do to make your house more attractive to buyers. Some agents even utilize “stagers,” whose job is to help you make your house ready to sell.
9. I can’t make my payments—now what?!?
You’ve finished your build and are loving your new home. There is only one problem: you’ve made one of the mistakes discussed previously and can’t afford your mortgage payments! What do you do? Don’t hide from your lenders. It is expensive and time-consuming for lenders to put a house into foreclosure. They would prefer to work with you to keep you from losing your home. If you find yourself in a difficult financial situation, talk to your lender immediately.
While you are doing your homework deciding on which log profile or stain color is best for you, make sure you also decide which home loan is in your best interest. Remember, a little preparation now can alleviate big hassles in the future.