You’ll save yourself thousands if you know why people mess up.
Can’t wait to cozy up in that cute Colonial, but anxious about signing up for your first mortgage?
I get it. Buying your first home is a big stinking deal. But with a little know-how, it’s easier than expected to make smart mortgage moves and save big bucks over the course of your loan.
By avoiding these mistakes, you can put your home-buying butterflies to rest.
#1 Finding Your Home Before You Find Your Mortgage
How Much It Could Cost You: Enough to send your future kid to college. Seriously, over the life of the loan, you could end up paying tens of thousands of dollars more in interest and fees than you need to.
Why People Mess This Up: If you don’t have your financing buttoned up before you find your dream home, your desire to win the bid could influence you to offer a higher price and overpay on a mortgage because you had no time to shop around. Getting your financing all set before you feel the pressure to make an offer gives you time to qualify for a more attractive loan and gives you the confidence to make a fair offer because you’re a qualified buyer.
How to Avoid It: Start talking to lenders at least three months — maybe even six — before you start house hunting. Time-consuming tweaks like paying down debt or improving your credit score can have a dramatic effect on overall mortgage costs.
#2 Not Comparing Loans Correctly
How Much It Could Cost You: Just like No. 1 above, you could overpay by tens of thousands over the life your loan.
Why People Mess This Up: First-time buyers often get seduced by a low interest rate and don’t take into account the cost of fees. A lower-interest loan could actually cost you more than one with a higher rate because those fees can be steep enough to outweigh the interest savings.
How to Avoid It: Have your mortgage advisor do a few different loan scenarios for you. For example an FHA loan has a lower interest rate than a regular conventional loan but it has higher upfront costs and a higher monthly mortgage insurance payment so a conventional mortgage with a higher interest rate can save you money. In the end don't assume a lower rate is better.
#3 Falling for Marketing Gimmicks
How Much It Could Cost You: More than enough to buy a good used car (or at least enough to cover Uber fees for a few years).
Why People Mess This Up: ”Lenders use advertising hooks like, "You don’t pay the closing costs,’ or no cost loan". Don’t be fooled. You still pay those costs, if not in cash, you’re paying it in the rate.
How to Avoid It: Block out the noise. Shop for your mortgage according to trusted recommendations and reliable reviews, not slick deals that sound too good to be true.
#4 Not Budgeting for Your Craft Beer and Yoga Pants
How Much It Could Cost You: Time and money for the things you love to do, like meeting friends over a pitcher of the newest session beer, then hitting the gym in the morning to work it off.
Why People Mess This Up: First time homebuyers usually want Lenders to qualify them for the max mortgage amount. They’re looking at your monthly debt-to-income ratio. They don’t look at what you spend your disposable income on: your passions and hobbies. Think about that so you don't end up with a mortgage payment you can only afford by scaling back on things you enjoy.
One homebuyer may be a homebody, like to cook, and have no pets to pay for. Meanwhile, a second buyer with the exact same income and debt situation might travel every weekend, enjoy fine dining, or shop a lot. Lenders can’t look at that.
How to Avoid It: Track your spending monthly, so you really know how much you spend. Factor fun into your future when deciding which mortgage offer is the best fit. Two years into your home purchase, you want to be happy you did it!