When it comes to buying a home, it's easy to get lost in the excitement of finally fulfilling this significant component of the American Dream. It's a component that, for many people, takes a long time to accomplish, so when it finally happens, your sense of achievement can overpower the logic and practicality of taking out a home loan. To ensure your dream of homeownership is everything you'd hoped it would be, avoid making these five mortgage mistakes that could cost you.
1. Paying your mortgage off before other debt
Although the idea of fully owning your own home can be appealing, it can be damaging to put more money toward your mortgage than toward your higher-interest debt, such as credit cards. Credit card interest rates can be as high as 25%, whereas your home loan may only be at 5%. Plus, your credit card interest is not tax deductible, so by avoiding higher payments toward your credit card debt, you'll be hurting yourself financially over time.
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2. Underestimating your financial security
It's always better to pay off your debts as quickly as possible because (a) it helps you get out of debt faster, and (b) you pay less in interest over the life of the loan. So taking out a 15-year mortgage is a great way to go -- IF you can afford it. If you're unsure of how much money you'll be making in the next few years, or you work in a role that doesn't necessarily guarantee a steady paycheck (such as an independent consultant or freelancer), then taking out a 15-mortgage instead of a 30-year mortgage can leave you in a financial hole down the road. The best thing to do would be to take out the 30-year mortgage and make the higher payments if you can. That way, you're not confined to making the higher monthly payment, but you still have the option of paying it down faster if you want to.
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3. Failing to monitor your credit history
Know your credit history, status and score before a lender goes to check your report. By failing to monitor your credit, you may miss an error or fraud that could lead to a lender denying your loan. Check your report at least every six months to ensure there are no mistakes that could hurt your chances of buying a home.
4. Putting all your eggs in one basket
When it comes to buying homeowners insurance, you can save a ton of money simply by shopping around for the right home insurance quotes. In a recent experiment, Bankrate gathered homeowners rate quotes from four different major insurers for 15 samples addresses across the nation. The survey found that rates ranged by as much as 188%. It's essential to shop around to ensure you're getting the best rate possible.
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5. Being unprepared for hidden costs
Many people turn to buying instead of renting because they think, I'll be paying the same amount (if not less) each month, so why not own my own home? In reality, though, there are hidden costs you want to know about before you sign the dotted line. These costs include the down payment (which is typically 20% of the overall price of the home), maintenance costs, inspection, closing, commissions, and property taxes.
Sarah Kaufman is the editor-in-chief of The Manilla Folder at Manilla.com, the leading, free and secure service that helps consumers simplify and organize all of their bills and household accounts in one place online or via the 4+ star customer-rated mobile apps. Sarah is also a regular contributor to Yahoo! Finance, Good Housekeeping, Woman's Day, Redbook, The Jane Dough and other sites. For more financial tracking and budgeting advice, visit Manilla.com.