The topic of the year in the mortgage/real estate industry has been the spike in foreclosures over the last 9 months. We have reached foreclosure rates that have not been seen in over 20 years and has added more stress on the already weak real estate market. While the media has blame bad loans, wall street, the government, what can YOU do to ensure that you will never have to worry about foreclosure?
Avoiding foreclosure begins before you purchase your house. Purchasing a house is typically the single most expensive transaction most of us will make in our life time. However, most of take more time planning our weekend activities than the purchase of our house. Failing to plan is a plan for failure. There are a lot of details that must be considered and discussed before you start shopping for houses.
1. Plan Wisely
How much can you afford now? How much can you afford in 5 years? 10 years? How long will you live in this house? Are you expecting your family to grown in the next 5 years? A majority of us only think about today and worry about tomorrow when it comes. However, this is a recipe for foreclosure. Interest only (IO) loans and adjustable rate mortgages (ARM's) are not at fault for the problem that we face now. The lack of planning is the problem. While, both loans carry additional risk they both offer great benefits for those borrowers who planned wisely. Before talking to any one (Realtor or Mortgage Professional) develop a personal financial plan for the next 5-10 years. What debts do you have now? What debts will have in 5 years? Consider; growing family, new car, saving 5%-10% of your income, emergencies. I always suggest that you over estimate your debts and under estimate your income (raises, promotions). Once you have considered all factors you can now determine how much you can afford monthly on your new house.
2. Talk with a Mortgage Professional
There are thousands of mortgage professionals available to help you obtain financing for your new house, talk to a FEW of them. It is important that you like and trust the person that is helping you find a mortgage. Make sure the person that you choose will help you MANAGE your mortgage (they will help and assist even after the loan closes). This is important because you want some one that will take care of you after the loan closes. If the rates drop and you can save a few hundred dollars a month, will this person call you? Will they remind you when you rate is going to adjust? Will they help you manage your credit after the loan closes? They should be willing and able to sit down with you and discuss all the options that are available. A good mortgage professional will tell you all the advantages and disadvantages of the different loans your considering. You want to make sure they are willing to walk you through the entire process. Follow your gut feeling, if you are uneasy or don't feel right, find some one else to work with.
3. House Hunting
MAKE SURE YOU STICK TO YOU BUDGET!!! If you can afford a $250,000 house, purchase a house that is $250,000 or LESS. This is a buyer's market and there are thousands of houses available there is no reason to purchase a house that is not in your budget. Take your time and view as many properties as you can before you decide on a house. When comparing houses find out what property taxes, monthly HOA dues, and insurance will cost. Theses additional expenses can vary a lot between houses and will help you stay in budget.
4. Managing Your Finances
You would think they would teach personal finance in high school, since it's a subject that every American will use every day for the rest of their life. Don't use your credit cards if you can't pay it off at the end of the month. Plan on saving 10% of your income every month for retirement or a rainy day. A majority of foreclosures are caused by life time events (death in the family, illness, injury, divorce, loss of job), not because of bad loans. Plan for the rainy day and if you are lucky enough to avoid them you will enjoy retirement that much more.
For more helpful mortgage or real estate information visit us at, http://www.myprosperityfinancial.com/ or call 303.666.6550
Prosperity Financial, LLC
Lafayette, CO
Refinance - Purchase - Cash Out- Home Equity - Great Rates
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