What Not to Do Before Buying a House

When it comes to buying a home, people tend to make the same mistakes over and over. The problem is, the repercussions can last for years. Skipping the home inspection or even small oversights can delay the closing date or have long-term consequences.

1. Don’t ignore your credit history

Your credit history impacts mortgage eligibility and the interest rate you’ll receive. A strong credit profile signals to lenders that you’re a reliable borrower, leading to lower interest rates and saving you thousands over the life of the loan.

What to do instead:

Before applying for a mortgage, review your credit report. Search for any errors such as accounts you don’t recognize or incorrect payment statuses, and dispute inaccuracies early on. Even minor errors can negatively impact your credit score.

2. Don’t miss a payment

When planning to buy a home, consistent on-time payments are essential. Even one missed payment can lower your credit score and raise red flags for lenders. If you’re still paying another mortgage, missing a payment will make you ineligible for a loan for at least a year for most lenders.

What to do instead:

You may want to set up automatic payments for bills including credit cards, student loans, car payments, and utilities. Regardless, make all your payments on time so you don’t get disqualified and experience delays in the homebuying process.

3. Don’t max out your credit card debt

Maxing out your credit cards is one of the biggest mistakes you can make before closing. Credit utilization is how much credit you’re using compared to your limit. For example, if you have a credit card with a $10,000 limit and you have a $2,500 balance, your credit utilization is 25%.  This ratio significantly impacts your FICO score, and can lead to a higher interest rate on your loan. 

What to do instead:

Before applying for a loan, aim to keep your credit utilization below 30%, ideally around 10%. If your credit utilization is too high, pay down existing balances and avoid bigger purchases with your cards. 

4. Don’t make large purchases using debt

Taking on new debt, like car loans, furniture, or even cosigning loans can impact your ability to qualify for a mortgage. Larger purchases can increase your debt-to-income (DTI) ratio, a key factor lenders use to assess how much house you can afford.

What to do instead:

Before buying a home, hold off on any large credit-based purchases. Even if you can afford the payments, adding new debt may reduce your loan approval or lead to higher interest rates. Instead, focus on keeping your financial profile as steady and low-risk as possible.

5. Don’t drain your savings account

While it’s tempting to put every dollar toward your down payment, it’s a mistake to empty your savings account. It’s always best to have a financial cushion for unexpected expenses. That way you’re covered for surprise repairs, medical bills, and even job changes.

What to do instead:

Aim to build an emergency fund with at least three to six months of living expenses. Additionally, set aside extra savings for closing costs, moving expenses, and any home updates or repairs you may need right away. A healthy reserve account can protect your investment from day one.

6. Don’t start house hunting without mortgage pre-approval

To understand how much you can truly afford, mortgage pre-approval is key. Without a pre-approval letter, you might get attached to a home outside of your budget or miss out to another buyer who’s already qualified.

What to do instead:

Getting pre-approved helps you understand how much you can realistically afford based on your credit, income, and debt. It also shows sellers that you’re a serious buyer, giving you a competitive edge.

7. Don’t select the first lender you find

Don’t just go with the first mortgage offer you receive. If you shop around first, you could end up with a lower interest rate and better terms. 

What to do instead:

To start, request quotes from multiple lenders, including banks, credit unions, and mortgage brokers. Compare interest rates, closing costs, and loan terms carefully. Even a small difference in rate could save you thousands.

8. Don’t neglect looking at different loan types

Don’t assume a conventional loan with a 20% down payment is the only path to homeownership. There are many alternative mortgage options, and you might overlook a program better suited to your financial situation.

What to do instead:

Take time to research different loan types, including FHA loans with low down payment requirements, VA loans for eligible veterans, USDA loans for rural areas, and adjustable-rate mortgages (ARMs) that may offer lower initial rates.

Common loan types include:

• Conventional Loan: Offers flexible down payment options as low as 3% with private mortgage insurance (PMI). These require a higher credit score and must fall within conforming loan limits.
• FHA Loan: Require only 3.5% down and designed for buyers with lower credit scores. They do include mortgage insurance for the entire loan term.
• VA Loan: For eligible veterans, active-duty service members, and their families, a VA loan offers several advantages: no down payment, no mortgage insurance, and often lower interest rates.
• USDA Loan: For buyers looking in eligible rural or suburban areas, this option requires no down payment. Income limits apply based on location and household size.
• Adjustable-Rate Mortgage (ARM): Begins with a lower fixed rate, then adjusts based on market trends. These can help you save early on, but carry the risk of rate increases.
• Fixed-Rate Mortgage: Offers predictable monthly payments and a stable interest rate for the loan’s duration. This is ideal for buyers who plan to stay in their home long-term.

9. Don’t forget to budget for closing costs

Many buyers focus on saving for a down payment, but overlook another major expense: closing costs. These fees are due at the end of the home buying process, and should be budgeted for. 

What to do instead:

Before making an offer, talk to your lender about an estimate of your closing costs so you can plan ahead. 

They typically range from 2% to 5% of the loan amount and may include:

• Application fee: Up to $500
• Appraisal fees: $300-$500
• Home inspection fee: $300-$500
• Title insurance: 0.5%-1% of the mortgage amount
• Loan origination fee: 1% of the loan amount
• Escrow fees: 1% of the home sale price
• Recording fees: $125
• Property taxes: Varies
• Homeowner’s insurance premiums: Varies

10. Don’t change jobs

Changing jobs right before or during the mortgage process raises concern for lenders. Even if the new position has a higher salary, a sudden shift in employment can delay or jeopardize your loan approval.

What to do instead:

Most lenders look for at least two years of steady employment in the same line of work. This consistency signals financial stability and lowers the risk in their eyes. If possible, hold off on any career moves until after closing. Source

Before You Apply For A Mortgage, Do These Six Things

If you only read this paragraph, we hope you’ll take away this one, must-have lesson for homebuying: it’s an extensive process and we recommend a thoughtful, measured, step-by-step approach. The more time you invest in preparation and careful consideration, the more you’re likely to enjoy the result of your home purchase.

1. Check your credit scoreTwo-story white home with many windows and a big yard with a tree out front

Your credit score plays a huge role in your home loan as it’s a reflection of your ability to handle money and pay debts in a timely manner—all of which are important to lenders. People with better credit scores can also gain lower interest rates, which can lower monthly payments. In general, the higher your score, the better.

Getting your credit score is easy. Federal law entitles you to one free credit report annually from AnnualCreditReport.com. Their report will include scores from the three credit reporting agencies (Experian, Equifax and TransUnion). We also recommend checking out each site just to familiarize yourself with reporting agencies (sometimes they offer free reports as well).

Once you receive your report, review it carefully.

What is your credit score? If you plan to apply for a conventional mortgage, you’ll need a score of 680 or more. However, your score can be lower for other types of loans like a FHA, VA, USDA or NIFA loan.

Is the information correct? If not, now is the time to correct any mistakes that appear in your report. Visit the Federal Trade Commission’s page to learn how to dispute errors on your credit report.

Do you need to make improvements? If your score is lower than you’d like, consider making a few spending changes to improve your score. Experian and Equifax explain further in these blogs on gaining a higher score. 

2. Determine how much you have for a down payment

Your down payment is essentially the first payment of your home’s selling price. The more you can put down, the more you can reduce your home loan, which then reduces your monthly payment. Depending on your income and recommended loan, a down payment can be as low as 1.25% for a VA loan or 20% and more for a conventional loan.

Knowing your down payment can also help your mortgage loan officer recommend a loan that fits your needs. Knowing your down payment will also help you determine a home price and monthly payment that suits your income.

Down payments can come from savings you’ve put away, the equity in a home you’re selling and even a gift from a relative or friend. Some people can also qualify for a down payment grant.

We know it can be tempting to stretch your dollars to get a lower monthly payment. However, it’s important not to dip into your emergency fund and leave yourself without a safety net. Like we said before, a careful, measured approach is always the way to go.

3. Figure out your real monthly expenses to estimate an ideal home payment

So, credit score: check. Down payment: check. Now let’s add up your potential monthly expenses so you’re not surprised down the road;

• Mortgage insurance. If you plan on getting a conventional loan, but are unable to put 20% down, you’ll need to have mortgage insurance. Your lender can help you determine the additional monthly cost. Not all loans will require mortgage insurance and your mortgage loan officer can help you determine what type of loan is right for you.
• Utilities. Age, design, square feet and occupants all play a factor in how much you can expect to pay for water, gas and electricity (let’s not forget about garbage, either). Some utility companies will provide a 12-month average cost for a specific property, which makes it easier to calculate your monthly expenses.
• Home insurance. Plan for the big “uh-oh” with a solid home insurance policy. In the Midwest, we’re almost guaranteed to have occasional extreme weather and the more you can plan, the better. Call a few reputable insurance agencies and ask for a no-obligation quote.
• Non-home monthly expenses. Add it all up—groceries, insurance, cable, internet, subscriptions, clothing, haircuts, gym memberships, health care, the costs of owning a pet, vacations, planned gifts, fuel and others (be sure to look at the monthly and yearly cost for a big picture view). Did you get it all the first time? It’s always a good idea to take a second look.
• Home maintenance. Homes, like all things, will eventually need updates and repairs. Multiple sources, like bobvila.com, suggest setting aside 1–4% of your home’s value every year for maintenance. You may not spend that much every year, but setting that money aside will help with expenses that eventually happen (air conditioners only last for so long).

It might take a little work to track down these numbers, but it’s time well spent. You’ll have a highly detailed look at your potential monthly expenses and have a better understanding of how much house you can afford.

4. Figure out your debt-to-income ratio (DTI)

Your DTI is the percentage of your monthly income that is used to pay your debts. It’s also used by banks to determine if your income and debts are in a range that will also support a home loan. Most lenders look for a DTI of 43% and below. A mortgage loan officer can help you do the math or can follow this formula:

• Add up your monthly debt payments (these do not include monthly expenses)
• Then find your monthly income before taxes (gross income)
• Then divide your monthly debt by your gross income
• Then multiply the result by 100 to get your DTI as a percentage.

5. Get your paperwork together

Your lender will want proof of your current financial standing, including income, debts, savings and investments. Common documents include:

• Identification information (social security number, birth date, full legal name)
• Residence history (current and previous two years)
• If you are a renter, include the landlord or management company contact information and be able to show you have made rent payments on time for at least one year
• Employment history (current and previous two years—include company names, addresses and your title)
• If you are self-employed, provide a profit/loss stamen for the current and previous year
• Tax returns and W-2s (previous two years)
• Pay stubs (last two months)
• Other income
• Bank, investment and retirement account statements (last two months)
• List of other assets such as autos or other property
• List of monthly debt obligations (use the list you created to figure out your DTI)
• Written explanation of any derogatory information on your credit report

6. Find a bank you’re comfortable with

Buying a home is one of the largest purchases you’ll ever make—that no one trains you for. There are plenty of online guides, but experience is always a better teacher, which is why it’s important to find a bank and mortgage loan officer to help you at every step. You WILL have questions. Then you’ll have even more. And we take the extra steps to make sure you feel comfortable and knowledgeable throughout the process.

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Reasons Not To Tap Your Home Equity

As residential real estate prices have soared, so has homeowners’ equity, and homesteads now contain a near-record amount of tappable cash. However, it isn’t always a good idea to borrow against your home equity, even if you have sound uses for the funds. The reasons range from the timely (the relatively high interest rate environment) to the eternal (the risks of hocking your house for cash); from current economic forces (the rising odds of a recession) to individual finances (the dangers of a debt overload).

Here’s what to consider when deciding whether to borrow against the value of your house — and why you may or may not want to.

What is home equity?

Home equity is simply the portion of your property you’ve paid off — the amount or percentage you own outright. It’s the difference between your home’s appraised value and your outstanding mortgage loan balance. Put another way, it’s the sum you would pocket in a home sale after paying off what you owe to your lender (not counting closing costs). However, this equity is technically only a “paper” gain until you either sell or borrow against it.

According to the Federal Reserve, American homeowners collectively possess nearly $36 trillion in home equity as of the second quarter of 2025. Individually, the average mortgage-holding homeowner has an equity stake worth around $307,000, according to property-data analyst Cotality.

How do you tap into home equity?

There are three primary ways to tap the equity stake you’ve accrued: a cash-out refinance of your mortgage, a home equity line of credit (HELOC) or a home equity loan.

1.) Cash-out refinance

Best for: Borrowers who want a lump sum and a new mortgage with different terms

With a cash-out refinance, you take out a new and bigger mortgage to replace your existing one. The difference between the two loan amounts is the cash you’ll pocket at closing, which equates to some of the equity you’ve accrued in your property (your lender may require you to keep at least 20 percent equity in your home). Your new loan’s outstanding principal will be higher than that of the loan it is replacing, but you can opt for a shorter or longer term.

“For example, if you owe $100,000 on a home that’s worth $200,000, you can take out a new mortgage for $150,000 and take the remaining $50,000 of equity as cash,” says Rick Sharga, president and CEO of CJ Patrick Company, an Orange County, Calif.-based market intelligence firm. “But it’s important to realize that this will increase your debt, from $100,000 to $150,000 in this example, and will generally result in you paying more interest over time.”

You’ll also have to pay closing costs, as you would with most refinances.

2.) HELOC

Best for: Borrowers who want to withdraw funds as needed or don’t know how much they’ll need upfront

A HELOC works as an adjustable-rate revolving line of credit. It’s somewhat like using a credit card — only, instead of your debt being unsecured (as it is with plastic), you’ll be required to put your home up as collateral. As with a credit card, you borrow what you need whenever you like (within a finite draw period), repay what you owe, and borrow again if you choose.

Your HELOC’s credit limit will be based on your available home equity; you can typically borrow up to 80 or 85 percent of your home’s value (excluding your unpaid mortgage balance). During the draw period — often the first 10 years — you’ll be required to pay monthly interest on any amount you borrow, but your funds will be replenished as you repay the principal. During the repayment period, funds are no longer accessible and you’ll be obligated to repay the principal and interest over 10 to 20 years, on average.

A HELOC has a variable interest rate that changes as the prime rate shifts — often, from month to month — so your overall balance and monthly payments will fluctuate too.

3.) Home equity loan

Best for: Borrowers who are happy with their current mortgage terms but want a lump sum and fixed repayments

A type of second mortgage, a home equity loan is taken out against the equity in your home. As with the HELOC, your home becomes collateral for the debt (meaning you could lose it if you don’t repay the loan); unlike the HELOC, you borrow a set amount, which is paid out in a lump sum at closing.

“Using the previous homeowner example [owing $100,000 on a home that’s worth $200,000], they could borrow $50,000 against the equity in their home and begin making monthly payments on the second loan in addition to their primary mortgage loan’s monthly payment,” Sharga says. Terms vary, but home equity loans can be repaid over as long as 30 years.

“A homeowner with a very good interest rate on their current mortgage loan might consider this option rather than a cash-out refinance, as the latter could charge a higher interest rate,” Sharga continues. Lenders often charge lower interest rates for home equity loans than on personal loans and credit cards. “But second mortgages tend to have higher interest rates than primary mortgages, so borrowers should factor this in before using this option,” he adds.

Reasons not to use your home equity;

Just because you can tap your home equity with any of the methods above doesn’t mean you should — even if you intend to use the money wisely, such as toward a home improvement project that will increase your property’s resale value. Some of the reasons have to do with the current economic climate, and some are more evergreen and individual, relating to personal finances.

Interest rates remain relatively high

As Bankrate forecasted at the beginning of the year, home equity rates have declined in 2025 — and in October, they reached their lowest point since 2023. However, average rates are still hovering above 8 percent, so they remain significantly higher than they were just a few years ago.

“The future direction of interest rates, and the economy, is highly uncertain,” says Mark Hamrick, senior economic analyst and Washington bureau chief for Bankrate. “One should make borrowing judgments on what they’re currently seeing instead of trying to time the market based on a guess.”

And while current home equity rates are much better than the double-digit rates of credit cards or personal loans, don’t confuse “better” with “great.” Charging 8 or 9 percent in interest is hardly giving the loan away. In the grand scheme of things, home equity loan and HELOCs are still pricey debt.

You can fall deeply into debt

A home equity loan will add to your total debt, possibly making it more challenging to afford repayment of all of your unpaid balances in the months and years ahead. “Tapping into equity increases your overall debt and what you will owe your lender — both in principal and interest — over time. So it’s important to weigh short-term benefits versus long-term costs,” notes Sharga.

HELOCs in particular can be a trap. “Many homeowners find it difficult to stay disciplined in paying down the principal on their line of credit,” says Seth Bellas, a home loan specialist for Churchill Mortgage. During the initial draw period, “most HELOCs only require you to pay down the interest every month, similar to how a credit card has a minimum payment,” Ballas adds. “By the time the full repayment is due, you will have not only your principal to pay back, but also interest on that principal, making it a pretty steep hill to climb if you aren’t in a great financial position.”

A high degree of uncertainty continues to characterize the current economic environment, Hamrick notes. If the economy stumbles or a negative event emerges in the months ahead, job loss and interrupted incomes could cause difficulty for many individuals and households. “Given the high rates of interest that prevail, taking on more debt could be a less-than-optimal decision for some,” he says.

The housing market and home values are unpredictable

The housing market has had a solid upward trajectory over the past years, which is why you might be considering a home equity loan in the first place. If your home’s value keeps increasing regularly, you’re in good shape, right? But there’s no guarantee that home prices will continue climbing.

And even if the national housing market looks resilient, remember that real estate is extremely local. For example, data from Cotality shows that, while Connecticut homeowners gained an average of $37,400 in equity over the past year, those in Washington, D.C., lost an average of $34,400.

“The risk of taking equity out of your home gets especially keen if your local market prices are moving downwards,” says Sharga. “You might ultimately find yourself owing more than your home is worth.” Being in such a state of negative equity is rare — 2 percent of all mortgaged homes were upside down in Q2 2025, according to Cotality. Still, it can happen if there’s a sharp, prolonged drop in local real estate prices and you’re carrying a substantial amount of debt.

You’re putting your home on the line

With home loan products, the debt is secured by your home. That also makes the risk greater if you miss payments. Defaulting or being delinquent on unsecured debt (like credit cards or personal loans) is unpleasant and damages your credit score, but you won’t lose your property. But with home equity lending, you’re essentially adding another mortgage to your home, which is probably the biggest single asset you have.

Think carefully about why you want the money and whether its worth borrowing for. While using your home equity for a vacation or snazzy new car might be tempting, it’s a significant risk for a fleeting reward. Other uses arguably have more merit, but consider alternatives before tapping home equity.

Ask yourself: Is it worth possibly losing your home to foreclosure in the event market conditions worsen or your personal financial situation deteriorates? And consider that when you liquidate equity, you dilute your homeownership stake. That makes your property a less valuable asset and decreases your overall net worth.

"Tapping into equity increases your overall debt and what you will owe your lender — both in principal and interest — over time. So it’s important to weigh short-term benefits versus long-term costs." — Rick Sharga, CEO at CJ Patrick Company Source

How to Turn Your Home Equity into Monthly Cash Flow

 

Discover how to turn your home equity into monthly cashflow! Whether you have a nearly paid-off home, own single-family rentals, or simply have untapped home equity, this video is for you! 

Red Flags When Buying a House

With so many considerations to weigh in potential properties, here are some red flags to look out for when buying a house, especially during the viewing.

• Poor tiling or flooring work. This would be a sign of a bad flip or remodeling job, and you could end up spending a lot of money to fix it.

• Foundation issues. Hairline cracks are usually a sign the house is settling as it ages, but larger gaps or cracking could signal a bigger issue with the foundation.

• Poor maintenance. If it is apparent from the walk-through that the seller has failed to keep the property in good condition, there might be even worse problems beneath the surface. A poorly maintained home might require costly repairs or renovations.

• Nearby water. If the home is near a pond, lake, canal, ocean or other body of water, the property could be at a higher risk of flooding. Ask your real estate agent to find out if the property is in a FEMA flood zone, which might trigger the need to buy special flood insurance in addition to homeowners insurance.

• Poorly installed windows. This could be a sign of foundation problems or a bad remodeling job requiring new windows. If you need help, check with your real estate agent.

• Mold. Check the bathroom and sink cabinets, as well as take a look around water pipes or drains. Look for small black or gray spots. You can also check the caulking around faucets as well as look for patches on the ceiling.

• Water damage. A musty odor may be a sign of water damage. Be sure to check walls and ceilings for water lines, and look out for exposed piping in basements or laundry rooms to check for rust, water stains or leaks.

• Improper ventilation. Poor ventilation increases the risk of mold. Look for condensation on windows or slightly bubbled or peeling paint around windows, doors or vents. This might mean there’s moisture in the walls or in the ceiling drywall. Source

DRE ID # 01769353

NMLS ID # 394275

What Is a Fixed Interest Rate?

A fixed interest rate offers stability, ensuring level payments throughout your loan's term, unlike variable rates, which fluctuate with market conditions. Understand the implications, calculation methods, and strategic choices involved in selecting a fixed or variable rate to better manage your financial planning.

A fixed interest rate is attractive to borrowers who don’t want their interest rates fluctuating over the term of their loans, potentially increasing their interest expenses and, by extension, their mortgage payments. This type of rate avoids the risk that comes with a floating or variable interest rate, in which the rate payable on a debt obligation can vary depending on a benchmark interest rate or index, sometimes unexpectedly.

Borrowers are more likely to opt for fixed interest rates when the interest rate environment is low when locking in the rate is particularly beneficial. The opportunity cost is still much less than during periods of high interest rates if interest rates end up going lower.

Fixed rates are usually higher than adjustable ones. Adjustable or variable-rate loans often start with lower teaser rates, making them attractive when interest rates are high. Source

What Happens When You Refinance Your Mortgage

Refinancing a mortgage means replacing your current home loan with a new one, usually with better terms. You're not paying off your house early, just restructuring how you repay it. 

Here’s what the refinance process generally looks like:

• Choose a lender. You can stick with your current mortgage provider or explore others. Comparing rates and terms is key. Some credit unions may offer lower rates or fewer fees than other lenders, so shop around.
• Apply with documentation. The process is similar to your original mortgage. Be prepared to provide pay stubs, W-2s, bank statements, and other financial details so your lender can evaluate your application.
• Get an appraisal. A new home appraisal helps your lender determine current value and available equity, which can impact your loan terms.
• Close the loan. If approved, you’ll sign new loan documents. Once finalized, your old mortgage is paid off and replaced with the new loan..

Note: Refinancing can cause a small, temporary dip in your credit score. A hard inquiry during the application process may lower your score by a few points. However, making on-time payments on the new loan can help your score recover and even improve over time.

Factors to Consider Before You Refinance 

Before you move forward, take time to evaluate whether refinancing supports both your short- and long-term plans. Here are some key factors to keep in mind:

• Upfront costs and fees. Closing costs typically range from 2% to 5% of the loan amount. Make sure the savings from refinancing justify these expenses over time.
• How long you’ll stay in the home. If you plan to move soon, you may not stay long enough to benefit. Ideally, you should remain in the home long enough to break even on the cost of refinancing.
• Your home equity. If you have at least 20% equity, you may qualify for better rates and remove PMI. With less equity, you could still refinance, but options may be limited.
• Your financial profile. Lenders will assess your credit score, income, debt, and employment history. A strong financial profile increases your chances of approval and favorable terms.

Is There a Magic Number for Refinancing?

There’s no single rate that signals it’s time to refinance. In many cases, even a drop of  1% could lead to real savings, depending on your loan balance and closing costs. Rather than focusing on a single number, think about what you hope to achieve: lower payments, a shorter term, or cash out for big expenses. 

A common rule of thumb is the “2% rule,” which suggests refinancing only when your new rate is at least two percentage points lower than your current one. This guideline can be helpful, especially if you plan to stay in your home for several more years, but it’s not a hard requirement.   

Another helpful way to evaluate when to refinance a mortgage is to calculate your break-even point—the number of months it will take for your monthly savings to recoup your refinance costs. For example, if you spend $3,000 to refinance and save $150 per month, you’ll break even in 20 months. If you expect to remain in your home beyond that point, refinancing could be a sound financial move.

Refinancing isn’t a one-size-fits-all solution. Understanding how to refinance and when it makes sense will help you make confident, informed decisions. Source