The Four Biggest Mortgage Mistakes to Avoid
Mistake #1: Being “house poor.”
If you commit too much of your monthly income to housing costs (e.g., mortgage payment, HOA, etc.), you’ll have little to no money left to use for anything else. That means you’ll be strapped for cash should something unexpected happen (like your car needing new tires). You’ll also have limited funds available to save for your future – whether for retirement or college. The rule of thumb is to spend less than 28% of your pre-tax income on housing. You never want your home purchase to feel like a mistake.
Mistake #2: Not recognizing the cost of homeownership.
You should recognize upfront that owning your own home comes with expenses you may not anticipate. We recommend you budget approximately 1-2% of your home’s purchase price for routine maintenance costs each year. So, if you paid $350,000 for a home, you can anticipate around $3,500-$7,000 for this purpose. Maybe you need a new roof or the A/C needs to be repaired. You’ll also need to pay property tax if it’s not already included in your monthly mortgage payment. Whatever the case may be, by anticipating these expenses, you can experience less stress as you enjoy your home.
Mistake #3: Applying for the first loan you find.
Considering the magnitude of this purchase, it’s in your best interest to shop around for the best deal possible. Don’t take the first loan offered to you or take advantage of a loan program just because it was referred to you by a friend. You need to make sure you have the right loan for your circumstances. Shop around – check out the mortgage rates, terms, and fees from many different lenders. Then make the choice that’s best for you.
Mistake #4: Ignoring your credit.
Make sure to get your free credit report each year through annualcreditreport.com. Review your report carefully and let the credit bureau (as well as your lender) know of any mistakes you find. Fixing these mistakes quickly will help improve your score. If you find your score is lower than you would like, there are many ways you can increase it. Talk to one of our loan officers at Southern Bank to discuss ways to help you improve in this area.
Information is for informational purposes only and is not intended to provide legal or financial advice.