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
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.
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