Mortgage Crisis and Buying a Home
While there are multiple causes for the current mortgage crisis, part of the responsibility lies with borrowers who purchased homes and took out mortgages they couldn’t really afford. Many people who did this have ended up hurting themselves, and in a classic ripple effect, have negatively impacted 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.
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.
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. 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?
Acting on the points above means you may have to exercise some delayed gratification and discipline, but doing so will help you enjoy the house you buy and play a role in preventing a future mortgage crisis.
