Did you know Americans owe $12.14 trillion in mortgage loans? Unfortunately, some people sign mortgage loan agreements without understanding what they’re getting themselves into. And this can cause problems that make owning a home a nightmare rather than a blessing.
You likely remember the subprime mortgage crisis from 2007 to 2010. Perhaps you or someone you know was burned during this period when predatory private mortgage lending paralyzed the housing market. It was an ugly period in the country’s history that no one wants to see repeated.
If you want to buy a home and need a mortgage, here are three things to consider before signing a mortgage loan agreement.
1. Strive for a Down Payment of 20% or More
Before buying a home, you must consider whether you have the financial capacity to do so. It’s easy to get caught up in the emotions of buying a home — especially if there’s a fear of prices skyrocketing and making it more difficult to purchase a home.
If applying for a mortgage loan, you’ll get a better interest rate if you can make a down payment of at least 20% of the home’s cost. For one thing, a larger down payment means you’ll need a smaller mortgage loan, which means you’ll pay less overall interest than if you make a more modest down payment. Consider, as well, that you’ll have to get private mortgage insurance if your down payment is south of 20%. So, it’s best to make a down payment of at least 20%.
2. A Good Credit Score Means Better Mortgage Loan Interest Rate
You’ll be better off if you have a good credit score. Lenders want to ensure the people they lend to can repay their mortgage loans, and a good credit score indicates you pay your bills on time. If you have collection agencies chasing you for the money you owe, that’ll hurt your mortgage loan chances. In fact, if your credit score is south of 620, you may have difficulty finding a lender willing to grant you a mortgage loan. So, if your credit score isn’t solid, you may either get a mortgage loan with a hefty interest rate or fail to secure one altogether.
3. Ensure Monthly Payments Fit Your Budget
Do you want to be house poor? That means having to earmark so much of your budget for household expenses that they barely have enough money for anything else. You can avoid this scenario by buying a home you can afford so that the percentage of your income going toward the mortgage loan is reasonable. Again, you don’t want the dream of homeownership to turn into a nightmare that possibly costs you your home if you can’t keep up with monthly payments.
That’s why you need to know how much you can afford to spend on a home. It should fit your budget. Don’t make decisions based on how much you might make in the future through promotions or wage increases. Make decisions based on what you’re making now.
If you can afford a home for $750,000, why not attempt to buy one for $600,000? Spending less than you can afford means you’ll have more financial flexibility.
These are some things to consider before signing on the dotted line of a mortgage loan agreement. You can get into a lot of trouble if you don’t consider the ramifications of a mortgage loan pact. Should you struggle with your mortgage loan and face the risk of losing your home, your best bet is to contact a lawyer experienced in helping clients in such situations. There’s too much at stake, so speaking to a legal professional is a must.