The biggest lesson learned by American home buyers during the Great Recession is that it is extremely unwise to sign a mortgage that is beyond your means to pay back. A contributing factor to the astronomical number of foreclosures over the past few years is that borrowers were seduced by questionable mortgage products into buying a house that was barely within their means to pay under the best of circumstances. As soon as times got tough, those mortgage payments became impossible to meet.
If you are considering heading into the slowly recovering market and buying a house in 2011, the most important thing you should do is ask yourself one vital question: How Much Mortgage Can I Afford ?
The answer is going to be different for every person or household. In order to figure out how large of a mortgage you can safely afford, you need to be honest about your current financial situation. This means looking not only at your net worth and the amount of debt you currently carry. It means examining your credit history to spot the kind of patterns that loan officers will be watching for. It also means being realistic about your future. Salaries aren’t growing the way the were five or even three years ago. In many industries the threat of layoffs and cutbacks is still quite real. Denial about your future prospects is a serious mistake when choosing a mortgage product.
Take responsibility for this. Don’t count on a loan officer telling you that you’re a bad risk and suggesting that you need a smaller mortgage. There are still some lenders out there who are willing to take high risks and you need to remember that they are doing so with your future.
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