Mortgage Mistakes That Will Haunt You For Years

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We all know what home not to buy during the Halloween season: The one where a grisly murder occurred 13 years ago…or the one that’s built on a Native American burial ground, etc.

The horror movies don’t reveal what kind of homes really come back to bite the buyers, however. Often, it’s not the homes themselves that are cursed; it’s the mistakes that residents make during the homebuying process that are truly scary.

Here’s a list of errors that will end up haunting you for years if you aren’t careful. They aren’t spooky, but they’re worth screaming about.

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This mistake has the potential to make life a nightmare down the line for the buyer. It’s easy to fall in love with a home and shrug off that it’s outside of your planned budget.

If you ignore your spending plan, it can haunt you in both the short and long term. First, you’ll decrease your “rainy day” savings, the money you have on hand in case of personal emergencies or in case of urgent maintenance. Having just-in-case cash is a must. Just hoping for the best is irresponsible, especially with a family in the picture. And it’s tough to make a house into a home if you can’t afford furniture or simple upkeep.

In the long term, buying a home outside of your budget results in higher monthly mortgage payments. It doesn’t seem too bad to count pennies in the short term, but it will become a drag if you’re living paycheck-to-paycheck for 30 years across the life of your mortgage.

It’s important that you set a budget and stick to it. Get pre-approved for a mortgage so you know what you can afford, and shop accordingly. Don’t forget about closing costs when shopping.

If you need further proof that overspending can haunt, just look at the mortgage crisis of 2008. A combination of unrealistic buying and lending led to a crash that still haunts the U.S. economy today.

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One of the biggest hurdles for a new homebuyer is the initial down payment. This is a large chunk of cash, far more than the future mortgage payments. It’s tempting to go after mortgage plans that require amounts as small as 3 percent down.

It looks good now, but think about what the ramifications are across the 30-year life of a loan. First of all, your mortgage payments will be higher if you put less down. The more you put down, the less you need to borrow. If you put $50,000 down on a $250,000 home, while borrowing at a 3.625 percent rate, you would pay $912 monthly. If you only put down 5 percent, or $12,500, you would pay $1,083 at the same rate. That’s a difference of more than $170 every month. over the life of the loan, that’s more than $61,000.

The spectre of having that sum in your bank account will certainly haunt you if you opt to go low with your down payment. Putting less than 20 percent down often means you need to pay for mortgage insurance as well. Even if you don’t have the cash for a big down payment, you can get a cash gift from a relative to help get over that hump.

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If you’re being offered a great rate right now, don’t assume that it will be there when you are finally ready to close on a home. Therefore it’s safe to lock in your rate to give you some wiggle room for closing. Locks are typically available for 15, 30, 45 and 60 day periods.

There’s some strategy for locking rates. Generally, the longer the lock, there will be a slight increase in rates. For example, a 45-day lock may incur a 12.5 basis point increase (or .125 percent). A 60-day lock might increase the rate by .25 percent. It’s good to aim for a 30-day lock; this usually keeps your current rate safe without penalty, and offers you plenty of time to close on a home. If you’re feeling daring, you can get a 15-day lock, which generally comes with a bonus decrease .125 percent to your rate. This requires you close within that 15-day window or risk losing your rate, however.

Locking your rate won’t have the potential to save you $60,000, in all likelihood, but every little bit counts. It can still save you thousands over the life of your loan.

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It’s a great market right now, thanks to low rates. But what happens if the market shifts and rates increase? There will suddenly be far fewer buyers, scared away by rising rates.

If you expect to move again soon after buying a home, keep in mind whether you’ll be able to sell it a few years down the road. If your home is located in a less trendy neighborhood, or far from a great school district, you might struggle to find buyers when they are fewer and far between.

Where does that leave you? Will you be able to buy a new home if you can’t sell your current one? Is renting it out a possibility? Keep these things in mind when buying a short-term home, or it will linger.

Many horror films use cheap jump-out-and-yell-boo tactics to scare audiences. It works, but the effect doesn’t last. True classics, like The Shining, stick with the viewer and make it a struggle to sleep, even years later. Some options for buying a home—such as putting down a big down payment or buying a slightly smaller home—might put you on edge today, but doing the opposite can haunt you 30 years down the line.