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Be Careful When Squeezing into a Mortgage
By Dan Lewis
Buying a home is an emotional decision and most people try to get the best the possible can afford. That being said, one must be careful when squeezing into a mortgage.
Be Careful When Squeezing into a Mortgage
When it comes to certain foods, there is an old saying that one's eyes can big bigger than the belly. The same goes for real estate. When shopping for real estate, the natural inclination is to look for the best home you can afford. While this makes sense on many fronts, the questions becomes what exactly does afford mean in this context?
The point of moving into a new home is twofold. First, you want an enjoyable place to live. Second, you want to make a good investment that is going to payoff for you when you sell or need money at some later date such as retirement or when you need to pay for the astronomical tuition fees charged by colleges. Given these goals, just barely qualifying for a mortgage may be a bad first step.
Assume you spend what seems like endless weekends hunting for that perfect house. Finally, you find the home of your dreams, but it is a bit more than you planned to pay. You will probably start trying to create a budget that will let you squeeze into the home. The key, of course, is the monthly mortgage payment.
Once you do your budgeting, you discover the only way you can get into the home is with an interest only loan. Even then, it is going to be a bit tight on a monthly basis. You fully realize that the equity you build on the home will solely be in the form of appreciation, but you decide to do it anyway because you really like the home. You get the loan, close the deal and move into your new home.
Now, fast forward six months. The red hot real estate market has cooled off. In fact, appreciation rates are stagnant. You also really have to scrimp and cut corners to make your mortgage payment. In another two month, you will have to somehow come up with $3,000 for the property taxes.
You have the home of your dreams, but at what cost? It is not a good investment because you are only paying the interest on your loan and appreciation rates are stagnant. Second, you are not really enjoying living there because you are most likely stressed out over finances. Heck, you are probably having trouble sleeping. In short, you have failed to meet your two goals of finding an enjoyable place to live and making a good investment.
When purchasing a home, be very careful about buying at a price level above what you can comfortably afford. It can lead to a lot of stress and sleepless nights.
About the Author
Dan Lewis is with http://www.gwhomeloans.com - San Diego mortgage brokers providing San Diego home loans.
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