Top 10 Millennial Mortgage Mistakes
In this day and age of technology, where everything seems simply a click away, one thing remains true, getting a mortgage is far from a simple process. In some ways, it’s easier due to advances in technology, but much holds true about the role of a mortgage in modern life. It’s complicated. For one, it’s the largest debt most people ever take on and most often is done without thorough research. The following list condenses down some of the top mistakes and missteps our younger generation tends to make when buying their first home and getting a mortgage.
1. Not understanding the home buying process and approaching it unrealistically.
2. Having false expectations of affordability and the true cost of homeownership.
3. Not understanding the use of credit, debt and leverage.
4. Not seeing mortgage planning as building a nest egg of long term equity.
5. Underestimating future living expenses after the home purchase.
6. Thinking that buying foreclosed property is the ticket to riches.
7. Failing to explore the many options available before making a decision.
8. Over-focusing on buying a house rather than how this asset fits into a goal plan.
9. Not using the services of trusted advisors such as attorneys and accountants.
10. Not planning the journey far enough in advance to do the proper research required.
There is much information available online today on all these topics but today’s home buyers more than ever need education, guidance, experience, and expertise to go along with all the technology. We find that our smarter buyers tend to take the time in advance to educate themselves on the process, their expectations, the marketplace and the players in it.For more information on these topics, please visit our blog at http://www.netequityloans.com/MyBlog
HousingWire has covered the misconceptions in-depth, such as this article on 5 common down payment misconceptions.
But if reading about down payment myths isn’t enough, mortgage insurer MGIC created a calculator for home shoppers to see if they should buy now or wait.
MGIC designed the calculator to help mathematically show that waiting to save for a 20% down payment will likely cost prospective homebuyers.
“As mortgage professionals, we must help counter this misinformed idea. Let consumers know – especially those looking to buy their first home – that waiting to save up 20% is not the only option, and they may be better off buying a home today with a smaller down payment rather than waiting,” MGIC stated in a blog on the new calculator.
This example from MGIC helps break down the math:
Let’s assume someone is saving for a 20% down payment on a $200,000 home. She has saved $10,000 of the $40,000 she needs for a 20% down payment and can add $500 to savings each month – $6,000 a year.Our calculator will help her see she could buy a home with as little as 3% down, and the cost if she were to purchase today with 5% down (the amount she has available today).It also shows that if home prices appreciate at 3% annually (the user can adjust that value), her future 20% down payment will need to be $48,552 and take her more than 6 years to save.During that time, she will have paid more than $80,000 in rent while her home equity position would be more than $72,000 had she bought 6 years ago.
Let’s assume someone is saving for a 20% down payment on a $200,000 home. She has saved $10,000 of the $40,000 she needs for a 20% down payment and can add $500 to savings each month – $6,000 a year.
Our calculator will help her see she could buy a home with as little as 3% down, and the cost if she were to purchase today with 5% down (the amount she has available today).
It also shows that if home prices appreciate at 3% annually (the user can adjust that value), her future 20% down payment will need to be $48,552 and take her more than 6 years to save.
During that time, she will have paid more than $80,000 in rent while her home equity position would be more than $72,000 had she bought 6 years ago.
The blog did caution that it is not trying to encourage prospective borrowers to buy homes before they are ready.
However, even these low down payment mortgages have misconceptions around them. For added research, check out these 6 myths about Freddie Mac's 3% down mortgage.