Mortgage Crisis and Buying a Home
While there are multiple reasons for the current mortgage crisis, part of the responsibility lies with borrowers who bought homes and acquired mortgage financing they couldn’t really afford. The result has been many people hurting themselves, and in a classic ripple effect, harming the entire global economy.
The good news is that current homebuyers have the ability to strengthen our future economy and protect themselves by making smart financial decisions. Chief among these is living within one’s means. This pertains to items small and big, from deciding whether to go to the movies to choosing between which home to buy.
Heeding the advice listed below can assist you in living withing your means, having greater peace of mind, avoiding foreclosure, and creating greater stability in the economy.
1. Wait until you have a larger down payment. Although loans are available with down payments as low as 3%, the traditional guideline of a 20% down payment is still smart. A higher down payment lowers the amount of debt you’ll carry. It can also mean a lower monthly payment, and correspondingly, less financial strain and stress. It’s true that saving for a down payment to buy a home takes time, but it can bring great rewards.
3. Save enough reserves. Mortgage payments are major expenses and it is important to have enough in savings to cover your payments should you become unemployed or have unexpected emergencies. As a matter of fact, most loans require you to have a certain amount of savings for this very purpose. By keeping at least three to six months of mortgage payments in a savings account you can keep your credit good and avoid foreclosure if a significant financial challenge arises.
3. Look at all the costs. In contemplating how much you can afford as a homebuyer, you need to consider the expense of furnishing, improving, and maintaining your home. How much will the couch, table, chairs, beds, etc. cost? Can you afford both the house you’re looking at and everything that will go into the home?
4. Be aware of your total debt load. You also want to look at the amount of debt you already have and how much total debt you’ll have once you take out a new loan. Will more than half your income go to paying off debt? How much will be left for living and saving toward the future?
You may have to exercise some delayed gratification and discipline in order to follow the advice above, but doing so can mean greater enjoyment of the house you buy and play a role in preventing a future mortgage crisis.
Last 5 posts by Brandan Hadlock, with Direct Mortgage Home Loans
- Relocating To A New Home - June 5th, 2008
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