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Buying your very own house is always a very momentous occasion. You can get very excited which often results to carelessness. Oftentimes, people who get their very first mortgage make too many mistakes. These include buying houses one cannot really afford, being house poor, and getting mortgages with very high interest rates.

In looking for your very first home, you should always avoid mistakes in mortgaging. Such mistakes can be very expensive, running to thousands of dollars, and cannot be easily fixed. A mistake may drag on for years before it can be fixed, if it can be fixed at all. As such, here are some tips that to consider to avoid mistakes in mortgaging.

Examine Your Financial Capability

Before you get your first mortgage, be sure you are financially capable of buying a house. Note that mortgages are long term financial commitments involving heavy doses of monthly house bills. 

To determine if you are really capable of buying your house, check your monthly budget first. Analyze your income to expense ratio. Be sure you list down all your regular and expected monthly expenses. Also, make allowances for contingency expenses, such as medical emergencies, car repairs, etc. Always provide an amount for desired monthly savings. Add these all up and compare the total to your expected monthly income. Are you well covered? You are only capable of getting a mortgage if your monthly income exceeds your total monthly expenses by at least twenty-five per cent (25%).

Determine Your Target Monthly House Payment

Once you have computed your income to expense ratio, determine how much monthly house payment you can actually afford. You have to ask real estate agents or mortgaging companies about the average monthly home mortgage payments. Do not forget asking about real estate taxes, mortgage insurance (if applicable), and homeowner insurance. Always factor in allowances for home repairs and refinishing.

Analyze the Pros and Cons of Getting a House

Once you have a good grip of the expected expenses for home mortgages, reassess your plan to buy your own home. Carefully examine the pros and cons of buying your very own home. Meticulously compare the costs of buying and maintaining a new home and those of just renting one. Also, examine the amount of rent as it relates to the monthly house payment, house repair, and other related expenses. Consider also the prospect of having your very own house as just an investment. Ask yourself if you really are capable of getting your own house? Do you really want one?

Check Your Credit Report

Now, if you opt to buy a house because you are convinced that you are ready, check your credit report. Make sure that everything written in it is accurate and complete. Any incorrect information may adversely affect your mortgage approval. 

In case you have a bad credit history, such will adversely affect your ability to get a mortgage. If you are lucky to get a mortgage, it will likely be one with a very high interest rate. If you have a very low credit score, consider getting a mortgage some other time.

Foreclosures can really be very painful. Losing your home can be very devastating especially if you have already spent years paying for your mortgage. Also, a foreclosure can terribly affect your credit score. Once you have a foreclosure in your credit record, it may be impossible for you to get another home loan. 

If your house is foreclosed, your lender will evict you and eventually sell the house you have worked hard for. Moreover, if the sale price does not cover all your home loan debts, the lending company may ask you to pay for the rest regardless of the fact that you already lost your home. 

As such, before you actually end up in a foreclosure, you might as well take immediate action once you notice that your mortgage debt starts to pile up. The moment you realize that you are finding it hard to pay for your monthly house payment, you should immediately contact your lender.

Dealing with Your Mortgage Lender

Foreclosure is a common scenario all over the country. More or less, twenty per cent (20%) of all the people who avail of mortgages end up in foreclosures. If you do not want to be one of them, inform your lender right away.

Note that most mortgage lenders are willing to negotiate. Most of them will want you to keep your home as much as you do. Foreclosure is a very complicated process not only for you but for the mortgage lender as well. As soon as your house gets foreclosed, they will have to resell it. In some cases, they even have to spend for the house refurnishing so they can sell it. Finding a buyer for a foreclosed home may be difficult as well.

In dealing with your lender, you have to keep in mind that preventing a foreclosure is actually beneficial not only for you, but for your lender as well. However, you have to note that you should not wait for a foreclosure announcement or for three or more missed payments before you talk to your lender.

Proposed Solutions to the Lender

Forbearance

You can ask your lender to give you a definite time period to deal with your financial setback. During this period, ask your lender if he can allow you to make a reduced monthly payment. In some case, you can even ask the lender to let you skip some payments. However, note that every skipped or reduced payment should be paid after the forbearance period. This solution is applicable if you are experiencing a temporary financial setback and you are sure that you will eventually get tax refunds, payments, and other forms of monetary support in the months to come.

Loan Reinstatement and Modification

This means that your credit agreement may be modified. Your lender may agree to set a specific date where you should pay all your debts. Aside from setting a specific due date, the lender may also agree to modify the payment terms of your mortgage. This may result to a reduced monthly payment made on a longer payment term or you may also propose to convert your mortgage into a fixed rate instead of an adjustable rate mortgage.

A major mortgage problem that most people are faced with is foreclosure. Foreclosure happens to millions of people every day and if you want to avoid having a foreclosure in your credit report, you might as well take immediate action.

The best thing that you can do to avoid a foreclosure is to negotiate with the mortgage lending company. However, there are some instances when your lender refuses to negotiate. In such cases, you should consider taking other actions that may prevent or minimize the impact of a foreclosure. 

File for Bankruptcy

Bankruptcy refers to the financial situation when you cannot pay your debts because your creditors or lending companies have all your assets tied up. If you file for bankruptcy, this technically means that you are not capable of paying for your mortgage debts. 

In general, filing for bankruptcy can help you keep your home for some time or it can help you prevent your mortgage company to take legal actions against you. The moment you file for a bankruptcy status, the "automatic stay" statute is enforced. This means that the foreclosure process will be temporarily stopped and it cannot be processed until your mortgage lender gets court permission to "lift the stay". Moreover, the "automatic stay" statute will remain effective for as long as your bankruptcy case is still in effect.

On the contrary, bankruptcy cases will terribly bring negative consequences to your credit report. It may prevent you from getting another mortgage or getting other forms of loans. Such bad credit records will appear in your credit report for at least ten (10) years. 

Sell Your House

In cases where you think that your financial shortcoming will last for several months or even a year, you may consider selling your house. Selling your house not only prevents a foreclosure. It can also help you deal with your debts and eventually have some spare money for rental fees.

You can opt to sell your house if you know that the value of your house has increased. Most of the time, you will know that your house value has appreciated if many real estate agents are bargaining for your house. 

If you opt to sell your house, be sure to contact your mortgage lender first. He may be willing to help you make the sale arrangements or he may be able to recommend potential buyers or agents that can make the sale easy for you. 

Deed in Lieu of Foreclosure

If you think that you will find it hard to sell the house, you can opt to contact the lender and ask him to take the deed and your house before your mortgage debt ends up in a foreclosure. This is highly appropriate for you if you have not missed three (3) or more monthly payments.

In such cases, the lender may agree to a "deed in lieu of foreclosure". This means that the lender will take the deed and actually sell your house. However, they will not declare your debt as a foreclosure. As such, no bad credit record will appear in your credit report and you can ultimately find it easy to find another mortgage for a new home.