Sounds simple right? When why is the news still filled of stories defaulting on their mortgage payments?
My belief is that much of it is due to the short term mindset of American society; a home purchase is a long-term value proposition--I mean most mortgages are for 30 years! Or 40 years if you are in California, crazy!
Here are some tips to avoid these pitfalls:
1. Keep your monthly mortgage payment under one paycheck
This one is a no brainer. Don't let wonderlust get the better of you when shopping for your home. This is especially important if your are self employed and your monthly income varies. Remember you have to eat....and pay for other things like insurance and your phone. Here is a mortgage calculator for your planning. LOVE THIS TOOL.
2. Shop around for the best interest rate
AKA, ask more than one bank or credit union, even it means more paperwork.
Credit report 'pulls' for mortgage purposes within a set period of time only counted as one hard credit inquiry. Do them all within a short period of time.
3. Multiple quotes can help with more than just interest rates
Sends the message to your real estate agent you are SERIOUS about buying.
4. Lock in your interest rate for as long as possible
Shit happens, even during escrow. We would love for it always to be smooth sailing, but in reality its not. If you can lock in for the longest time possible, usually 90 days.
5. An ARM is a risk—even if you only plan to live there less than 5 years
ARM means Adjustable Rate Mortgage...which the rate is not fixed and adjusts by what is happening in the FED rates or the markets overall. There is usually 5 years at the beginning of the loan with a low fixed rate and then for the remaining of the loan, the rate is 'adjustable' based on what is happening in the market, its harder to plan your monthly budget when you don't know exactly what your loan payment will be. (SIDENOTE: think mortgage crash 2008....learn from this bad experience)
6. Make extra mortgage payments whenever possible (little extra now makes a big difference over the life of the loan)
7. Get a mortgage where you can still save for retirement
If you can afford the 15 year mortgage, you might want to go for the 30 year.
LOWER MONTHLY PAYMENTS = FLEXIBILITY
You can choose if you put more $$ towards your mortgage or say for retirement. Be thinking your head, 'Is the rate of return for my retirement investments higher than my mortgage interest rate?" If so, you can get more bang for your buck by upping your retirement savings to get the most out of the time value of money.
Hi, I am Summer, real estate agent in NE Iowa.