First Time Home Owners – How to Avoid the Financial Disaster Millions of Homeowners Are Facing Now?
The first time home buyers are really lucky in this real estate market right now. The interest rate is historically low; the homes are selling at bargain price, plus the $8000 stimulus tax credit can put them ahead of the curb. But… it does not average they can prevent a financial disaster and get into foreclosure if they do not know what they are getting into.
Millions of homeowners are facing serious problem because they purchased a home that they cannot really provide in the first place. Yes, I blame the financial institution who produced the mortgage programs that only look for a good credit score, a few months bank reserved and without a proof of income. Well, those were the days when people believe every words their Mortgage Loan Officer told them so.
Here are some tips on how to avoid the financial disaster millions of Homeowners are facing right now.
· Check your finances with your accountant, if you have one. Consider every possible scenario that might affect your income and expenses in the next 2-10 years; such as having children, child care, sending your kids to college, buying another car, medical care and other unexpected bills. Determine your tax bracket and what possible tax deduction you can get from owning a home and having additional dependents.
· Be sure the loan amount is base on what you know you can provide, not what the loan officer told you what you can. The lender will look at your current credit history and your current debt to income ratio to determine how much they can lend you. But they do not factor in your future plan that is why you need to estimate every scenario. When they said the principal and interest is $1400, not really, because the mortgage is not the only expense; you have to include mortgage insurance, danger insurance, HOA, and character tax or escrow. Now can you nevertheless provide it?
· Interview several Realtors to make sure you are dealing with a person with high integrity and with better judgment on what character to recommend. Your RE Agent must present to you the disclosure of the house – meaning the history of the house. That includes the repairs done, was there any fire, rule on painting and water, radon, asbestos, and termites found inside the house; and is there any problem with the plumbing, electrical and roofing? Those are the questions that you should ask during home inspection to avoid problems after you purchased the house. House repairs can be very costly and can put your finances in limbo.
Now that you have a home does not average you own the home. You nevertheless owe it to your mortgage company and they can take it back if you fail to pay your mortgage in just a few months, already if you have been living there for a while. The best rule of thumb is having at the minimum 6-12 months budget save. Being responsible, knowing every detail of what to expect can safeguard you to a lot of financial disaster that may arise in the future.