Another one bites the dust ….
It’s getting to be a sad site walking around our little neighborhood. All around us there are houses that have slipped into foreclosure. It’s obvious when it happens.
First the house gets really quiet. Then the yard starts turning brown and overgrown. And then it becomes official – the bank comes along and posts a legal notice in the window letting everyone know that the people who used to live their let their conventional home loan slip into default.
It’s not a pretty thing to see. That house used to be a happy place. Those used to be our neighbors. Maybe we’ll never know what unique situation occurred that forced this to happen. There are certainly a lot of things that could be the reason:
Why Do People Default On Their Home Mortgage?
There are a lot of reasons why houses go under:
- The people could no longer make their payments.
- The couple that used to live there got a divorce.
- The family moved into another house and could not unload the old house in time.
- Sometimes the default is intentional. If the value of the house is less than what the owner still owed on it, they might just “give up” and take the hit by quitting their payments.
We could debate for hours the root causes of these problems. Some people like to insist that the mortgage industry sabotaged the general public by giving them loans that they couldn’t afford. But I’m not so sure I buy that.
Didn’t everyone have access to the same information I did on conventional home loans when I got my first mortgage?
Didn’t they take the time to understand the difference between a fixed rate mortgage and an adjustable rate mortgage (ARM)?
Didn’t they sit down, look at their income, and make a grown-up decision about how much they could afford every month?
The Housing Market Rebound:
All those foreclosures and home loan defaults are the mistakes of the past. And you can never change the past. You can only go forward into the future.
But that’s what scares me. As the economy shows signs of strength and the housing market makes a rebound, it would be foolish not to ask:
Are we going to let ourselves make the same mistakes again?
Like all things in history, we are doomed to repeat our mistakes until we make a conscious decision to prevent ourselves from ever letting it happen again. It would be easy to blame certain mortgage products or services, but what about ourselves? How can WE educate ourselves into not creating another housing bubble?
Conventional Home Loans Don’t Have to Be Complicated:
I remember when I first started pursuing buying my first house, my Dad gave me one simple piece of advice:
Know what you’re signing up for.
What he meant by that was understand the terms of your mortgage BEFORE you actually sign your life away on the dotted line. A mortgage is a contract that you make payments on for a very long time. It will dictate how much or how little extra money you have every month to spend on other things within your family budget. It is not a decision to be taken lightly.
The funny thing about mortgages is that they are really not all that complicated – so long as you don’t make them any harder than they need to be. Essentially you are borrowing money for a fixed period of time at a known interest rate that you will have to pay back little by little each month for the next 30 years or so. However, it still blows my mind how many people do not take the time to figure this out ahead of time. That’s really too bad since you could easily use any number of Internet mortgage calculators to run different scenarios about how much you can afford. Online mortgage calculators are an easy way to see just how much you’ll actually spend each month on your conventional mortgage as well as learn about other things like taxes, insurance, etc.
Remember: Your home is your castle.
It’s what you come home to at night. It’s where you keep your family safe. It’s where you create memories that last a lifetime.
Don’t jeopardize all that with laziness or lack of planning. One thing I constantly promote on My Money Design is that you and only you are responsible for what you do with your money. If someone offers you a financial deal that you don’t understand, you don’t take it. It’s more important to understand what it is that you’re getting yourself into than it is for the chance to get wealthy.
Your house is no different. It’s your responsibility to figure out how much home you can afford, how long you’ll be making those payments at that rate, and what the implications will be if you fail to do so. If you need help, don’t be afraid to ask. Don’t be afraid to get multiple opinions until you find one that you can trust.
Don’t let your piece of the American Dream slip away from under you. Control what is yours, stick to the basics when it comes to the conventional home loan, and set yourself up for success. Why settle for anything less.
Images courtesy of MMD | FreeDigitalPhotos.net