When structured properly, a home mortgage can be a tool to help you build net worth. However, when not properly managed, a mortgage can cause excess burden and be a financial and emotional drain.
In the current environment of distressed home values and inevitable interest rate increases, now is the time to ensure that you have a mortgage strategy that is in line with your long-term goals. When advising my clients on their next mortgage, we consider much more than just their loan.
I ensure they avoid making the following 5 most costly mortgage mistakes:
1. Listing your home without first being approved for your next home purchase.
I often hear of horror stories where a homeowner sells their current home and later realizes that they are not in position to financially qualify for their next home. As a result, they are forced to either rent or purchase a house that is less than they had hoped for.
2. Borrowing more than you can afford or accepting a short amortization with a payment that is not sustainable within your budget.
Many homeowners have unmanageable mortgage payments. The inevitable result of an over-extended budget is an eventual inability to keep up with the required obligation. Emotions play a large role in how much home to buy, and when to have the mortgage paid off. Making wise and well thought-out mortgage decisions is crucial for long-term mental and financial health.
3. Not addressing credit challenges in time to help improve your score.
The interest rate you will qualify for is dependent upon your credit score, more so in today’s market than ever before. Having a credit review in time to correct errors can save you thousands of dollars in interest over the life of a mortgage.
4. Putting down your entire savings and not maintaining an adequate cash reserve.
Maintaining a cash reserve is the most important step in achieving financial peace. Without a cash reserve, families live paycheck to paycheck and in a constant state of stress. By not putting down every dollar you have, you can prevent the anxiety of day to day cash flow challenges.
5. Not considering consumer debts or other investment opportunities when determining how much to put down on your home.
Managing daily cash flow and minimizing interest expenses is an important consideration for longterm net worth growth. Sometimes, getting on the right path requires a one-time decision to clean up consumer debts to free up cash flow to help increase long term investment opportunities.
By avoiding these common mistakes you can help ensure you are making wise decisions regarding your mortgage that will be most beneficial to you in the long term.
Please contact me to discuss how these and other potential pitfalls can be avoided. By having these discussions early in your home buying process, you will be better prepared when the time comes to close on your next home.