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Too much house?
Almost every person dreams of owning
a home. But owning a small home usually
just isn’t satisfactory. Whether
it is due to a large family or other
reasons, we want a bigger and nicer
home.
As a result, most people rely on taking
out a mortgage to pay for this expensive
home. But there comes a point when should
you realize how much house is enough,
without endangering yourself from encountering
future financial dilemmas.
An article titled, “How Much Can
You Afford?” published by loansrc.com,
examines exactly how expensive of a
home you should buy depending on your
financial situation and personal needs.
The majority of finding out how much
you can afford is done for you, by the
mortgage
lender. They will not let you borrow
an amount that they think you will not
want to pay back.
Basically, they want to know three things
before lending you a specific amount;
if you make enough to pay them back,
if you are trustworthy and if you have
something valuable (collateral) for
them in the event you cannot pay them
back.
“Your lender will want to know
not only how much money you have, but
how much you will likely make over the
next 30 years. Also, what are your other
debts? Do you owe money for college
loans or credit card charges? Do you
have any other assets? Things like stocks
and mutual funds or personal property
like a boat or a car are also considered
in figuring out how much a bank will
lend you.”
You want to try a make a down payment
that equals 20 percent of the value
of the home, to avoid mortgage insurance
payments. This is difficult for many
people. As a result, many lenders will
allow people to make a down payment
for as little as three percent of the
value of the home.
How can mortgage lenders decide if you
are trustworthy? They look at your credit
rating.
The three major credit reporting agencies
are Experian, Equifax, and Trans Union.
You can personally request credit reports
individually from each agency.
“Your credit report -- a nifty
little compilation of your personal
financial history -- will reveal whether
you have a track record of paying your
bills on time.”
There are many ways to improve your
credit, but it usually takes some time.
You have instant collateral when applying
for a mortgage; your home.
“The house you buy will generally
be considered collateral for your
mortgage. As a result, in case you
can't repay the loan, the bank can decide
to do something really nasty: foreclose
on the mortgage and repossess the house.”
So, you have decided that you will be
able to make the payments for your dream
home, even though finances will be tight.
Is it worth it, or should you consider
a less expensive property?
“Before you borrow $90,000, $200,000,
or whatever
you need for your mortgage, figure
out whether you can really afford it.
Just because the bank will loan it to
you, doesn't mean that you will live
your life in such a way as to be able
to pay it back. Are you planning to
have a big family? Would you rather
replace your Chevy Cavalier with a new
Mercedes? Your house payment is just
one piece of your financial puzzle.
What might you need to give up making
that house a reality and are you really
willing to do it?” |
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