Credit: fool.com
When I bought my first home, I wasn’t very experienced financially and I made a few major mistakes when I got my mortgage loan. Unfortunately, these mistakes made borrowing more expensive than it would otherwise have been.
Luckily, I was able to make the required payments and I ended up selling the home for more than I paid for it, so it didn’t turn into the financial disaster it could have been. Still, the mistakes were regrettable and other future borrowers can hopefully learn from the errors I made so they don’t cost themselves money like I did.
Here were three big errors I made, which others can potentially avoid in the future.
1. Not shopping around for lenders
One of the biggest mistakes I made when I got my first mortgage was simply going with the bank that my real estate agent recommended. I didn’t get multiple quotes from different lenders, but instead just contacted the lender I was referred to and accepted the mortgage loan I was offered.
By making this choice, I deprived myself of the opportunity to make sure I got the lowest possible rate and charged reasonable fees. To this day, I have no idea if I overpaid for that loan or could have received a better rate or not — but I suspect I paid more interest than I should have, since the rate wasn’t very competitive relative to national averages at that time and I was a pretty well-qualified borrower.
2. Making a small down payment
I was really eager to buy my first house because I hated renting. As a result, I jumped into making a purchase even when I had just a 10% down payment. Since I was putting less than 20% down, I had to pay private mortgage insurance. This added to my monthly costs while protecting my lender and providing me with no direct benefit.
Each month that I paid PMI I was wasting money, and the payments added up to several hundred dollars. I could have waited just another few months, saved up a little more to make a 20% down payment, and avoided this unnecessary expense.
Of course, this isn’t to say it’s always a mistake to buy a home with less than 20% down. But in my case, my first home was very affordable relative to my income at the time and I had very few expenses. It would have hardly taken any time at all to save extra, so I wouldn’t have missed out on property appreciation or on much equity-building time had I simply been a little more patient.