There are so many mortgage nightmares out there that almost convinced me I didn't want to buy a home until I could pay in cash, but after studying the mistakes of my peers, there are a few ways I plan to avoid a mortgage crisis. Here is what I am doing now to prepare myself for a mortgage without suffering any losses.
Saving a year's worth of mortgage payments
It has been tough for me to try and save a year's worth of mortgage payments before I become a homeowner, but I also know I don't want to be without the available cash. This will allow me to endure a career change if something drastic were to happen without me going into foreclosure. It will also act as a cushion in case I experience another financial emergency like car trouble.
Buying regardless of interest rates
I keep hearing the argument for buying based on interest rates being historically low, and while that sets off an alarm to go buy, I calm myself down and realize it doesn't matter what the interest rates are. I would rather take out a mortgage when I know I can afford it, and when I am stable in all aspects of my life. Paying an eight percent rate is better than a two percent interest rate with the possibility of foreclosure. The "time to buy" is not the same for everyone.
Having an emergency fund
In addition to saving a year's worth of mortgage payments, I am working on building an emergency fund as well. The emergency fund would allow me to take care of unexpected emergencies I may have with the new home, like fixing a leaf in the roof, or replacing a dead appliance. I am not as concerned about the amount that is in the fund, but the consistency in which I can add to the fund.
Buying below my income level
When it comes to buying a home, I don't want to take out a mortgage that takes most of my income each month. Instead, I am looking for homes that are below my income level and ability, so that I will be able to put money into emergency funds, and savings. I don't need the nicest house on the block, but one that is functional and in a decent neighborhood.
Research mortgage lenders
Much of my anxiety over taking out a mortgage stems from seeing people lose their homes during the recession. I heard too many stories of lenders not working with clients that were not deadbeat customers. The last thing I want is to buy a home, and lose it a few years later because I partnered with an unethical mortgage lender. Knowing each companies policies on mortgages and foreclosures is a must for me!
- Investing Education