A big part of whether or not you get a mortgage depends on how well you can make decisions without getting emotional. It's important to keep your feelings about getting a house out of the way and treat the whole thing like a business.
When it comes to money, people act a little strange, especially when it's their own money, and getting a mortgage is the most money anyone will ever spend. So, if you can remove your feelings from the equation, your chances of making the right choice will go up by a lot. If you don't, you might have a hard time, since people who make mortgage decisions based on how they feel make mistakes.
Mistakes equal feelings and money.
When you look at their overall financial situations, those who take their time and make decisions based on the facts of their own lives do much better.
The questions below are meant to help you figure out how long you plan to live in a new house or have a mortgage. They should also help you do the soul searching you need to do "before" making such a big decision. In fact, how long you keep a mortgage may be the most important financial question you need to answer. This is because the answer to this question will tell you how to choose a mortgage and how to pay it off.
In the end, you are the only one who can make the choice. Only you know where you are in life right now, and only you can decide where to go with your life in the future.
Personal Questions
- Do you think your life will change a lot?
- How long did you live in the last place you owned? Why did you move, and does that happen to you often?
- Do you have any major health worries?
Will this be your last home before you retire?
Concerns about family
- When do your kids plan to move out?
- Is your marriage stable?
- Do you have any new family members coming to live with you (like children, elderly parents, etc.)?
Financial Questions
- How stable is my job as a whole?
- Should I expect a raise or a new job? Am I transferred at regular intervals?
- Is this a good investment that could be rented out for a long time?
- Do you want to retire soon, or are you just starting to work?
Could we rent out this house instead of selling it when we move?
Geographical / Economic
- How much are the taxes on the house?
- What is the economy like in the city or county as a whole?
- Do you think there will be long-term changes, like new roads, schools, malls, etc.?
- Are home prices in the neighbourhood going up or down?
- Do you like the local school system?
Where you are or where you live
- How are the people next door?
- How long will we be able to live in this house?
- Does the neighbourhood look like it's getting better or worse overall?
- What does the house look like? Do you need major repairs?
- Are you only buying this house because you can't afford anything else?
- If this is a first home, will it be too small in a few years?
There are, of course, many more questions that could be asked, but for the purpose of this article, let's look at some examples that show how answering certain questions will help you decide what kind of mortgage to get, such as a 30 year fixed, interest only, 2/28 ARM, 15 year fixed, and so on.
Example 1: If you lived in your last house for about 10 years and the one before that for about the same amount of time, it's likely that you'll live in the next one for a long time as well. So, you should do the same, and you might want to consider either a 15- or 30-year fixed mortgage.
Example 2: If this is your first house and you plan to move out as soon as you can afford it, you should get the best mortgage for short-term stays. You might want to get an interest-only mortgage or a 2/28 ARM. The rate on the 2/28 ARM is fixed for two years, and then it goes up (because it's an adjustable rate mortgage). However, if you plan to move soon anyway, the rate for the first two years will be lower than a fixed rate mortgage, saving you money. Interest-Only mortgages are usually paid off over 30 years, just like 30-year fixed mortgages, but the payments will be lower because you are only paying the interest. So, an interest-only mortgage could be a good choice if you want to lower your payments and maybe use the extra money to save for a down payment on your new home.
Logical choices, good planning, and money add up to success.
Even though it's hard, your chances of making the right choice when you buy a new home will be much higher if you remember to treat it like a business decision and not an emotional one.
