It's no secret that the U.S. housing market is in one of its worst slumps since the early 1980s. Every day, you can pick up a newspaper or turn on the news and hear about more foreclosures, more people falling behind on their payments, and a general decline in the housing and mortgage market as a whole. But even though the economy is bad, some people are still buying the home of their dreams and getting mortgages to help pay for it.
How can a smart consumer make sure they don't get caught up in the mortgage crisis and end up as just another statistic? Examining the type of house and mortgage you want to get, as well as doing some planning before you buy, can make all the difference between making it and falling into the ever-widening black hole.
One reason why the mortgage industry is being hit so hard by defaults right now is that credit standards were loosened so much that many people who would not have been eligible for a mortgage in a normal market were given loans. Some of these people have good records and are on their way to buying their own homes, which is to their credit. Still, many people quickly found themselves in a situation where they couldn't pay their mortgage because their interest rates changed and they bought more house than they could afford.
Whoever is thinking about buying a house should think about how much space they really need. Americans tend to buy bigger and newer houses, which makes the average house much more expensive, especially in places where land is expensive. A mortgage company doesn't try to figure out how much house you need; they only look at how much money you have and how well you can pay back the loan.
Even though you might just make it and get approved, how close is that bigger house to putting you in a position where one mistake puts you behind and you can't pay for it?
It goes without saying that your interest rates will be lower if you have good credit. Even if lenders tighten their credit requirements for new loans, cleaning up your credit before you buy a house is always a good idea. If you can lower your interest rate by a quarter of a point, you might not have to pay tens of thousands of dollars in interest.
When you go to buy a house, make sure you put down as much as you can afford as a down payment. This will help you get a better interest rate.
The less likely it is that a mortgage lender will make you buy insurance on the loan, the more money you put down.
As a rule, you should try to put down between 10 and 15 percent of the home's value. Again, every dollar you put down now toward a down payment on a house will save you money on interest and insurance payments in the future. Before they give you the best deals, mortgage lenders want to know that you are serious about buying and paying for that house.
