How to Avoid the Next Housing Retraction
The housing crisis of 2005 affected people nationwide. Before the fallout, loans had never been easier to obtain. Large loans were given with low payments, which resulted in overextending of credit.
When the loan payments ballooned, tons of people were unable to continue paying, and as a result, mass foreclosures began.
With house prices again rising well over assessment, many analysts are questioning if we are in a bubble yet again.
Rising house prices are not necessarily a bad sign, income has been steadily increasing, and most mortgages are issued with a set interest rate and consistent payment. This helps people to make more responsible choices when home shopping.
Here are a few ways you can help avoid the next housing retraction.
Down Payment Amount
Make sure you are buying what you can afford now, not what you can afford based on what your income might be in a few years. By making sure you have saved enough money to put a decent down payment on your mortgage, you are decreasing your monthly obligation in addition to saving on interest over the life of your loan.
Traditional loans require 20% down; however, there are many mortgages available that require less. Remember, you will have other costs associated with your new home purchase. Some of these may include updates and remodels, furniture, and more.
Before purchasing a new home, make sure that you have been in your job for some time and do not have plans of switching positions or relocating. Because a home loan is long term debt, you need to make sure you will be able to fulfill your obligation.
Especially in times of economic uncertainty and especially during a housing retraction, it is more important than ever to make sure you are secure in your career.
Size of Your Home
Don't overextend your budget. Take a hard look at your finances and set a budget and stick to it, whether you’re buying a home in Hamilton or San Francisco. Remember, it is easy to get swept away in the home buying process and buy a home that is bigger than you intended and consequently more expensive.
If you think about it, you really might not need that much space! By purchasing a smaller space, you are not only saving on your mortgage, but you are also saving on energy bills, taxes, decorating cost, and more.
By making smart home buying decisions, you are saving yourself from our next housing crisis. Bigger does not always equal better, and you will be in a far better position by making wise spending decisions. One thing to keep in mind is not to pressure yourself into buying a home right away.
If you haven’t saved the money required for a down payment, it may make financial sense to rent for some time so you can save up. Sacrificing for a couple of years could yield a positive financial return in your future. These few tips can help save you if we do fall into another housing retraction.
This article does not necessarily reflect the opinions of the editors or management of EconoTimes.