Mortgage Crisis and Buying a Home

By Brandon Hadlock, with Direct Mortgage Home Loans

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. Save for a large down payment. It's still smart to follow the traditional guideline of a 20% down payment even though loans are available with down payments as low as 3%. Paying more for your home upfront lowers the amount of debt you'll carry. It can also mean a smaller monthly payment, and correspondingly, less financial strain and stress. While saving for a down payment to buy a home means you may have to wait a year or two, it can bring great rewards.

2. Retain sufficient savings. It's also important have the equivalent of a few months of mortgage payments readily available in a savings account in case of job loss or other emergency. In fact, most loans have a reserves requirement. Having three to six months worth of payments in a bank account can bring peace of mind and help you avoid foreclosure or dings on your credit should something happen to your source of income or if 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. Consider all your debts. It's important to add all your current debts (credit card debt, auto loans, payment plans) to the amount of your proposed mortgage loan. Will paying off debt take up more than half your income? After you buy your home, home much money will be availabe for savings, investments and just everyday living?

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.

You can read additional information about mortgages at our Mortgage Help Center.

Seek and Learn Free printable crosswords Free printable sudokus

Copyright 2008 Mirroreyes Internet Services Corporation.