Mortgage Crisis and Buying a Home
Among the culprits of the current mortgage crisis are the home buyers who purchased homes and obtained mortgages that were too expensive for them. These people, perhaps even innocently, have ended up hurting both themselves and the worldwide economy.
Thankfully, people who are buying a home now have the opportunity to strengthen our long-term economy and protect themselves by considering and acting on good financial advice. One of these key pieces of advice is to live within one’s means. This is true whether buying a home or choosing what to eat for dinner.
Paying attention to the points listed below can help you live within your means, avoid foreclosure, have more peace of mind, and create greater stability in our national economy.
1.Don’t buy until you have a large enough down payment. It is still possible to obtain financing with small down payments, but it is wise to follow the traditional guideline of a 20% down payment. Doing so will decrease your debt and give you a smaller mortgage payment which translates into less financial strain and stress. You may have to wait to in order to pay a high down payment on your dream home but doing so 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. Take into account your total debt load. You’ll want to look at your current liabilities (car loan, credit card debt, etc) and how much total debt you’ll have once you take out a new loan. Will more than half your income be used to pay off debt? How much will remain for living and saving toward the future?
Following the above advice may require discipline and delayed gratification, but the greater safety and peace is well worth it. Additionally, you’ll be doing your part to prevent a future mortgage crisis.
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