3 Mortgage Rules Every Home Buyer Should Follow
by Christy Bieber | Published on Aug. 28, 2021
If you break them, you could come to regret it.
Taking out a mortgage is a big financial decision. To make sure you don't end up regretting your choices when it comes to your home loan, there are a few ground rules that you should be sure to follow. Here are three of them.
1. Don't borrow more than you can afford
The single most important rule to follow when getting a mortgage is that you should never borrow more than you can comfortably afford.
You don't want to stretch to get a mortgage, because doing so could leave you at risk of foreclosure. You could also struggle to afford furniture, as well as maintenance and repairs on your home, which could make your house less enjoyable to live in or even impact the underlying value of your home due to deferred maintenance.
Make sure you've worked out a detailed budget that takes into account the costs of monthly principal and interest on your mortgage loan as well as the cost of taxes and insurance. If your future mortgage payment is going to be more expensive than your current monthly housing costs, consider doing a practice run and putting the extra amount into savings for a few months so you can get an idea of what your new higher payments will feel like.
2. Make a generous down payment
You'll also avoid having to pay private mortgage insurance. PMI is added to your monthly bills, although it doesn't actually provide any insurance for you -- instead, it protects the lender from losing money if they have to foreclose when you've made a low down payment.
If you can't put down 20%, then try to put down as much as you can -- and aim for a minimum of around 10%. If you don't make a down payment of at least that size, there's a really significant risk that you'll end up with a home loan balance that's so high you couldn't pay it off in full if you sold your house. You'll also be restricted to a narrower pool of lenders who allow down payments below 10%.
3. Shop around for a loan
Finally, you should always get multiple mortgage quotes before you commit to taking out a home loan with any particular lender. That's because there's no one standard mortgage rate -- the interest costs for a home loan can vary substantially from one lender to another.
Because a mortgage is a pretty big loan with a long repayment time, any difference in interest rates -- even if it's pretty small -- can make a big impact on total costs. Only by getting multiple quotes from several lenders can you make sure you are getting the most affordable home loan for your situation.
If you get quotes from a few different mortgage loan providers, make a good size down payment, and ensure that your home loan is well within your budget, hopefully you'll end up happy with your decision to take on a mortgage to buy your home.
About the Author
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.