One of the main reasons the economy has been sluggish in recovering is that the U.S. housing market, where the Great Recession started, still hasn’t bounced back from its crash. And, with millions of Americans underwater on their mortgages, a full recovery may be a long way off.

The upside here is that we can all learn something from the unfortunate mistakes these people made a few years ago to protect ourselves financially in the years ahead.

Big Mistake: No Down Payment

One popular method for buying homes during the housing boom was to do so with no money down – in other words, by borrowing the house’s entire value. This often means one of two things:

• A second mortgage: Often, this loan would cover the 20 percent down payment and come with a high interest rate. Over time, second mortgages can cost borrowers enormous amounts in interest.
• Private mortgage insurance: This product requires borrowers to pay a certain amount per month per $100,000 borrowed to offset losses in case they default on their loans. Costs can be in the thousands of dollars per year.

Both of these options are expensive and illustrate the problem of no-down-payment home loans: they’re risky and are priced to compensate for that.

Nowadays, with credit much tighter than a few years ago, few lenders will agree to a mortgage without a down payment. Take a cue from them and save up – if you can’t afford the down payment, you can’t afford the house. Many homeowners who got lured into unaffordable mortgages have foreclosure or bankruptcy on their credit report, if not both.

Big Mistake: Selling for Less than You Bought

Once upon a time, real estate was considered an almost magical investment whose value would consistently increase over time. But, as the bubble-bust cycle showed us, that’s not always true. To avoid losing serious money by selling at the wrong time, consider that:

• Panicking doesn’t help. When markets bottom out, many people sell their stocks or homes, despite the fact that they’re taking a loss. This irrational behavior is often prompted by a desire to get out before losing any more money, but that is often counterproductive.
• Patience will help. If you stick with your investments though tough times, there’s a good chance things will turn around and you’ll end up recovering some (if not all) of your losses.
• You have some control. While you may not be in charge of how the market behaves on any grand scale, you can take charge of certain factors. Upping your mortgage principal payments, for example, will help you eliminate your mortgage debt sooner and thus save money on interest.

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