In the complex world of residential mortgages, many mistakes are made by home buyers as they try to navigate and understand all of their options. The good news is that many of the mistakes are avoidable with some education and greater awareness. Here are the three biggest mistakes we see home buyers when obtaining a mortgage, and a brief solution on how to avoid them:
1. The Commodity Trap: Over the years, people have been led to believe that getting a mortgage is similar to buying milk at the store or ordering fast food through a drive-through window. The reality is a mortgage is likely the largest amount of debt most people will ever carry. Likewise, a monthly mortgage payment is typically the largest portion of a family’s budget each month. And all of this is to help obtain perhaps the largest asset (the home) that most American’s will ever enjoy.
Solution: Take the process of obtaining a mortgage seriously. Start early. Be educated by a mortgage expert who asks lots of questions and takes the time to help you plan the mortgage appropriate for you. Do not rush the process or wait to begin the process once you’ve found a house you hope to buy. This leads to poor planning and decision-making that may have far-reaching consequences on the rest of your financial future.
2. Compartmentalizing: This mistake refers to “not seeing the forest for the trees.” Uneducated buyers approach the process of obtaining a mortgage from the standpoint of, “Get me the cheapest mortgage and hurry up…. I’ll then figure out the rest of my finances and goals.” They have not yet realized that how you structure a mortgage, and then repay it over the course of your lifetime, will dramatically impact every other aspect of your financial future.
Solution: Stop segmenting your mortgage from other debts and goals you have. Your mortgage must be factored in to your overall short and long-term financial goals. If done right, your mortgage can be a primary factor in helping you achieve the financial future you desire.
3. The 4 Financial “Blind Spots”™: Several years ago we identified the four “blind spots” that are keeping people from achieving the financial future they desire.
Lack of a Plan
Lack of Fiscal Literacy
Storing Money in Inefficient Places
Lack of a Wealth Team
Solution: We all have these blind spots, and until we are aware of them, they will continue to impede our progress to financial abundance and peace of mind. When it comes to mortgages and real estate, take the time to plan out what is important to you and how this mortgage (and house) will complement and work towards the rest of your goals. To increase your fiscal literacy, ask questions – lots of questions. Only work with a mortgage expert who is willing to take the time to educate you on all aspects of the mortgage and the process of obtaining a mortgage. As for where you “store” your money, find someone who can help you see the financial impact of various down payments and the pros and cons of paying “points” versus not paying them. Focus on what overall mortgage plan (and repayment plan) helps you build net worth the most over time. And build a team of financial experts who will help you make smart financial decisions throughout the year, proactively. This means ensuring you have mortgage expert, real estate professional, a financial planner, a tax professional, an insurance advisor, and an estate attorney. A huge component of our unique process is helping clients get the right professionals on their team to continuously help them avoid these blind spots year after year.