After years of overbuilding, over-investing, quick-flipping, and credit over-extension, we are now facing the real estate crisis - a crisis which has been created due to our own faults. As a result, the real estate market has been re-priced. Now, it's high time that we go back to the fundamentals of mortgage and follow them to save ourselves from further crisis.
Here are 5 tips which you may consider before you take a mortgage for your dream home:
Down-payment: If you are planning to buy a property, it would be a smart move if you start saving from today. A large down-payment of around 20% will help you in getting better interest rates and lower payments. You will also be able to build some quick equity in your property and thus can refinance the loan at a lower rate in the future.
Long term loans: This is not a good time for buying a property for quick flipping. No one knows when the real estate market would be revived. Venture into the real estate market only if you want to stay in that property for a longer period of time.
Live within your means: Getting approved for a loan does not always mean you would be able to afford the mortgage. Credit, capacity and collateral are the 3 important C's which you should keep in mind when you apply for a loan. You should only go for a mortgage if you feel you have the capacity to afford it.
You're best person to know what your credit is like and how much other debts you have. Do not go for a mortgage if you feel you won't be able to pay it off. You can rather rent a property, pay off some of your debts and raise your credit score and then apply for a mortgage and get a better interest rate after few years.
Real estate market: You should judge your capability based on your local real estate market. It’s better not to go by the national housing trends. Update yourself about the local job market, foreclosure statistics, price of the properties in your area, average time to sell off a property in your area etc. This will give you a fair idea about the real estate market. Then you can decide whether you should buy a property now or wait for some more time.
Price warning signs: During 2000-2005, U.S. housing prices increased by an average of 53% and in some places even more - Florida at 90%, Nevada at 94% and California at 109%. However, things changed for the worst and we are facing a huge crisis now. Sudden increase in real estate prices should serve as a warning for you.