Home Mortgage Loan: Just Because You Can, Doesn’t Mean You Should
One of the questions that I get from many people is this:
How do I know how much mortgage I can afford?
The answer, of course, is different for everyone. But I prefer to factor this into the equation: If you can afford it, it doesn’t mean you should buy it. You don’t have to spend money just because you can. In fact, it’s better if you don’t.
We were told that we could “afford” and “qualify” for a $350,000 home mortgage loan. And that was with a Alt-A 30 year fixed rate. We would have “qualified” for even more with an interest only or teaser rate ARM. But instead of getting the maximum, we instead bought a home for $187,000. It meets our needs, and will continue to do so for quite a few years. We made sure that we have room to expand a little, if we want to, and we like to have room for our frequent houseguests.
Home mortgage rule of thumb
The rule of thumb for the home mortgage is that you should not pay more than 1/3 (1/4 is better) of your monthly income on a home mortgage payment. But even then, if you can get away with paying less than that, so much the better. And that means the amount you pay after any resets. When deciding on a home mortgage, you should make your decision based on what your payments will ultimately be after any introductory periods end.
Whether or not you can afford a home mortgage should not be based on the 5-7 year period of time that you are paying less. And you can’t always guarantee that you will be able to sell or refinance before that resets. Ask the folks that are facing foreclosure as their home mortgage loan products reset.
Instead, think ahead to possible scenarios. Life is unexpected, and it is quite possible that different items, from job loss to loss of a partner to a change in family circumstances will affect your ability to make your mortgage payment. Think about the future, and try not to live at the edge of your ability.
And when you get your home mortgage loan, make sure that your payments are less than you can afford.
Tags: foreclosure, Alt-A, home mortgage loan, afford second mortgage,
mortgage loan blog, mortgage payment, loan reset
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