With my first home purchase as a single woman, I didn't have anyone by my side to crunch the numbers. Most of my friends and family know I'm terrible at math, but assumed I'd figure it out. Looking back now, I realize the only reason I didn't default on my mortgage loan was because of lucky timing. I was able to sell as prices started to escalate during the housing bubble. For me, it wasn't about making a quick profit as much as getting out from under a mortgage that was more than I could financially handle. According to a recent article by CNN Money, people who have poor math skills are more likely to lose their homes. A new study shows math-challenged people are five times more likely to go into foreclosure than people who are good with numbers.
Asking for help
I wish I had asked a friend or relative to help me figure out what I could afford before taking out the mortgage for my condo. Even though the loan officer could answer any questions I had, I didn't know what to ask. I just assumed if the bank wouldn't lend me more money than I could afford to pay back. After selling my condo, I bought a home with my husband. Since he has a bachelor's degree in accounting, we didn't overextend ourselves financially with the mortgage on our new construction home.
Buying less home
Instead of listening to the loan officer, my husband suggested we purchase a home that cost no more than 2.5 times his annual income. He didn't want to include my income since my job was extremely unstable. Because we followed his suggestion, we were able to weather the storm when the housing values collapsed. At one point, our $185,000 house was worth only $109,000. We'd still be underwater on our mortgage to this day if it were not for the fact that we bought a home in the right price range.
Looking at the total picture
One of the mistakes I made when I purchased my condo was completely underestimating the costs of home ownership. I neglected to budget for property taxes, homeowner's insurance premiums, home owner association fees, community development district fees, maintenance fees, increased utility bills and other hidden costs. I felt as though I was duped by the new home consultant who failed to explain that different fees. As a non math person, I was confused by the different numbers she threw out there.
Evidently, the study focused on people who had mortgages issued in 2006 and 2007, which is when my husband and I purchased our house. Twenty-five percent who scored on the lowest tier for math skills defaulted on their payments within five years. In contrast, only 5 percent of the top bracket for math skills defaulted. Although math skills are important, I think it's also critical that borrowers underestimate what they can afford. Although I was "house poor" when I lived in my condo, I feel extremely secure now knowing our home will be paid off in less than a decade.
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