10 biggest mortgage mistakes
Putting little or no money down
If you’re putting little to nothing down — say, 3.5% with an FHA loan or 5% with a conventional loan — you’re looking at several potential problems.
"Such loans require private mortgage insurance and provide the homeowner little or no real equity in the property," says Bennie D. Waller, professor of finance and real estate at Longwood University in Farmville, Virginia.
PMI typically costs $20 to $50 per month per $100,000 borrowed. Conventional loans let you cancel PMI once you accumulate 20% equity, but FHA loans require mortgage insurance until the loan is paid in full.
Putting almost nothing down also makes it easy to end up underwater. If home values drop even slightly, you’ll be unable to move or refinance without bringing thousands of dollars to closing.
In a rising housing market, however, you can come out ahead by paying PMI on a conventional loan until you have enough equity.
The PMI premiums may cost less than the higher home price you’ll pay if you wait until you’ve saved up a larger down payment.