Mortgage 101: Avoid Debt Traps When Saving for a Down Payment

Saving money for your new home purchase is much easier if you avoid these common mistakes.

If you do not qualify for a no money down VA or USDA mortgage, chances are you will need to save money for a down payment as well as your closing fees. In addition, you will also need to have some liquid assets available for an emergency fund. Since many people suffered financial hardships as a result of the Great Recession, some individuals have credit problems and have turned to rather expensive means to improve their scores. Here are some common debt traps people fall into and some alternatives.

Avoid High Interest Loans and Credit Cards

When money is tight and emergencies arise, sometimes it is easy to turn to the first available source of cash. For some people, this may be a high interest payday loan, while for others, they might use a high interest credit card. Both of these solutions tend to turn into problems because the interest rates and fees make it difficult to pay off the loans. A more useful alternative is to try to secure a loan from a small local credit union, which will be much less expensive and much easier to pay off.

Use Caution with Debt Settlement Companies and Debt Consolidation

Many times debt settlement companies and debt consolidation agencies can cause your credit score more harm than good. In addition, many plans devised by these agencies extend the amount of time you make payments, which increases your interest expenses. If you are having debt problems, a non-profit consumer credit counseling agency is a much better option.

To learn more about how to prepare for homeownership, contact a local mortgage broker today!