Mortgage Crisis and Buying a Home
Brandan Hadlock, with Direct Mortgage Home Loans
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. 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.
2. Have sufficient savings. It's important also to keep money in reserve that can be used to pay your mortgage payment in case of loss of employment or other emergency. In fact, most loans require at least a couple months of reserves. Having three to six months worth of payments in savings can bring peace of mind and allow you to avoid foreclosure or dings on your credit should something happen to your source of income or unexpected expenses arise.
3. Consider all the costs of owning a home. When determining how much you can afford as a homebuyer, you should consider the expense of furnishing, improving, and maintaining your home. How much will the bed, couch, table, chairs, and lawn mower, etc. cost? You'll have to pay for your own plumber now. Can you afford both the house you want and all the additional expenses that go with owning a 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.
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