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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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