Ben Carson, the US Secretary of Housing and Urban Development, recently made the statement that homeownership remains the principal way to build wealth. Owning a home is an exciting and smart decision. Before you say yes to your dream home, however, make sure that you aren’t spending more money than you need to. Be aware of these three common mortgage mix-ups and how to avoid them.
- My mortgage payment should be 30% of my monthly income: You might think that if your monthly payment is equal to 30% of your monthly income, then you are good to go. You are correct that most experts agree that your housing expenses should not exceed 30% of your monthly income; however, this figure should encompass all housing expenses. This could include homeowner’s insurance, for example, in addition to mortgage payments. Your actual mortgage payments should be less than 30% of your monthly income to allow for the remainder of your expenses as a homeowner.
- My credit score was approved, so I should apply for a mortgage now: Sure, it’s great that your credit score was approved, but if your credit score is not great then wait until it gets better! A lower credit score could be approved, but your monthly payments and annual percentage rate will be much higher than if you wait until your credit score is better. Fannie Mae and Freddie Mac set a minimum credit score of 620, but if you want to avoid spending more money on your mortgage, you should try to raise your credit score before you commit to a mortgage.
- 30-year mortgages are the best option: Sure, a 30-year mortgage is the most common option, but if you have the financial means to commit to a higher mortgage payment each month for less time, then you will end up saving money in the long run. This is true because while your monthly payments will be higher on a 15-year mortgage, your annual percentage rate will be lower. In fact, you could save thousands of dollars by committing to a shorter time frame- as long as you can afford it! There are plenty of mortgage payment options that differ from the 30-year fixed, so make sure that the one you choose will work best for your situation.
Our mortgage specialists want to ensure that you are getting the most personalized mortgage deal and not falling into one of these common mortgage mistakes. If you have any questions about which mortgage options are best for you, reach out to one of our mortgage specialists today.