3 Big Mistakes I Made With My First Mortgage

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  • When I took out a mortgage for my first home, I didn't know much about borrowing.
  • I didn't shop around for different lenders.
  • I also didn't make a large enough down payment.

Learning from my errors can help you avoid getting stuck with the wrong home loan.

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.

3. Choosing an adjustable-rate mortgage

Finally, I opted for an adjustable-rate mortgage with my first loan because the rate was a little lower than on a fixed-rate mortgage, and I anticipated moving or refinancing before the rate began adjusting. While this ended up happening, it easily might not have. I regret taking such a big risk and getting a loan with rates that could go up instead of protecting myself by ensuring that I knew what my total costs would be over time.

Fortunately, I now know better and have been smarter with subsequent mortgages. And hopefully others can learn from my errors and avoid making similar mistakes when buying their own first house.

Our Research Expert

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