Taking on a mortgage is one of the big signs of adulthood. It’s also terrifying. The pressure, the responsibility, the debt, it’s all a lot to handle.
Millennials are now the largest group of homebuyers. This means they are the target market for mortgage providers.
Although they are entering the market in droves, this doesn’t mean millennials are experts when it comes to managing the mortgage process. Let’s take a look at the 5 most common mistakes made by millennials and what you need to avoid.
The first mortgage mistake millennials make? Not exploring your options.
In today’s market you have multiple options when it comes to mortgage providers. Don’t blindly enter into a mortgage agreement with the bank you used to open your first bank account. It may seem easier but you’ll be limiting yourself in a lot of ways.
Find out which providers offer the best rates (and double check to make sure they’re giving you accurate info), which ones offer perks, which ones are the most tech-savvy and who has the best reputation. You need to have all the information available to ensure you are making the best choice.
The second mistake? Not looking at rate risk. If you take on a variable mortgage you will find yourself at a distinct disadvantage if interest rates rise. That being said, a fixed mortgage puts you at a disadvantage if interest rates fall. You need to know where you stand in order to correctly choose your mortgage type.
A report from LowestRates.ca noted the increasing popularity of fixed-rate mortgages. For risk averse homeowners this is likely the safer option.
The third mistake? Misunderstanding the down payment. Millennials, operating under the belief that they need large down payments to secure property, deplete their savings in order to put down a sizable initial payment.
In reality there are smarter ways to start life as a homeowner. By taking on a no down payment mortgage (check out VA, Navy Federal or USDA loans) or FHA loan or obtaining private mortgage insurance, millennials can keep more of their savings while still pursuing the dream of home ownership. There are also down-payment assistance programs that can help wannabe homeowners make the jump to homeowners.
Make sure you examine your options before you start the payment process.
The fourth mistake? Not checking your credit report. (Good and bad) credit is often something we don’t consider or think about until it bites us in the face. Well, here is where credit is very important.
Your credit rating will determine your mortgage rate and even your acceptance. It’s important to know where you stand.
Before you start the mortgage process you should obtain access to your credit report to ensure it’s accurate and amenable to a manageable mortgage. If there are red flags you may want to put your real estate plans on hold until you’ve smoothed over the issues in your credit history and improved your score.
The last thing you want is to be caught unaware and told your dream home is unobtainable because of your credit rating.
And finally, the fifth mistake millennials make: Ignoring the true cost of homeownership.
Looking at your mortgage application and seeing the multiple 0’s attached to your loan may throw you for a loop and think this is where all your money will be going for the rest of your life. Well, the bad news is your expenses don‘t stop at the mortgage.
Owning a home is expensive and you have to be prepared to budget in all your other responsibilities. Property taxes, maintenance, insurance, utilities, all these are costs you are responsible for on top of your mortgage and failing to pay any of them could result in real trouble down the road.
Owning real estate is a big responsibility. Yes, it is stressful but it is also important for building equity. Be aware of the potential mistakes you could make so you will avoid them and have a much better house hunting experience. You’ll be grateful for that when you’re sitting in your new home.