Buying a home is expensive, yet millions of us aspire to do just that. Renting a home has its pluses, but if you want long-term security and the chance to enjoy capital growth, buying a home is your best bet. However, investing in property is not always a good idea and in this article, we are going to discuss how you can avoid losing your home.
Can You Afford to Buy?
Before you apply for a mortgage, take a good, hard look at your personal finances. Whilst mortgage payments are often cheaper than rental payments, a failure to meet your mortgage repayments has greater consequences. It is essential that you do your sums before you start looking at homes for sale.
- Is your job secure? No job is 100% secure, but some jobs are less secure than others are. Most mortgage lenders won’t consider your application if you are on a temporary contract or facing redundancy. It is also harder to secure a mortgage when you are self-employed.
- Do you have enough saved for a down payment? Many lenders require a minimum 5% deposit on the purchase, so for a property costing $200k, this equates to $10k. It is possible to find lenders that offer 100% mortgages, but if you can’t afford the deposit, it is questionable whether you will have the means to make your monthly mortgage repayments.
- Do you have the cash needed to close the deal? Buying a home is not cheap. There are out of pocket expenses, including legal fees, removal expenses, and survey costs. Bear these in mind before you make a final decision.
- Can you afford to pay for repairs, utilities, and improvements? Running a home is expensive, too. When you rent a home, the landlord is responsible for repairs, etc., so if the HVAC unit fails, it isn’t your problem. Once you own the property, all of these costs are yours to bear. Can you afford it?
Affordable Home Ownership
The best type of mortgage for families is an FHA Loan. FHA loans are insurance-backed loans from the Federal Housing Administration. Only certain lenders are allowed to offer home loans via the scheme, so the risk to borrowers is lower.
FHA how much can I borrow is an important question. Right now, FHA loans are available on family occupied residential properties worth up to $750k.
An FHA Loan offers a number of important benefits, including low down payments and simple qualification criteria. It is also easier to sell the house if you can’t afford to meet your mortgage repayments, as a potential buyer can take over your loan and therefore the property. This means you can walk away debt-free. However, it isn’t a ‘get out of jail free card’, so read the terms and conditions before you apply.
Create a Homeowner Budget
Home ownership is a big responsibility, but assuming you have taken the plunge, the next step is to avoid losing your home. As long as you have enough money coming in each month, this shouldn’t happen. Hopefully, you did a detailed budget before you bought your home, so you were certain you had enough disposable income to cover the mortgage and related expenses.
If not, now is a good time to crunch some numbers. Draw up a budget and see if there are any areas where you can cut costs. Even small things like switching to a cheaper utility company or canceling an expensive cable deal could make a difference. If there is not a huge chasm between your income and expenditure, by cutting back a bit you might be able to keep ticking along until a better-paid job comes along. If this isn’t possible, consider taking on a second job or some other source of income.
What to Do if You Are Struggling to Keep Up with the Mortgage Repayments
Foreclosure is no joke. Lenders won’t hang around if you are struggling to make your mortgage repayments. Once you have missed three payments, unless you take action, the lender will foreclose on your home, leaving you in debt and homeless.
The most important thing is not to ignore the problem. Pretending everything is going to be OK is not a solution. If you do lose your home, the problems don’t stop there. Your credit rating will be destroyed and you will not find it easy to buy another home in the future – unless you suddenly come into a lot of money.
The good news is that it isn’t all bad. Firstly, if you took out an FHA loan to buy your home, you shouldn’t have a problem finding a buyer to take over the debt, although you may take a loss on the purchase since any buyer that comes along holds all the bargaining chips.
Secondly, you might be able to come to an arrangement with the lender. Some lenders are more sympathetic than others are. If your current situation is only temporary, i.e. you have lost your job but you hope to find another one soon, the lender might be willing to alter the terms of repayment so that your payments are reduced or even frozen for a short time. This will cost you more in the long-term, but at least you get to keep your home. If you go down this route, make sure you speak to the right department and write everything down.
Alternatively, if your lender doesn’t want to play ball, see if you can find a better financing deal with a different lender. Interest rates are very low right now, so if your current mortgage deal is fixed to a higher rate of interest, you could find a more competitive deal elsewhere.
Sometimes, your only option will be to try and sell the property once it becomes clear you can’t afford to stay there. Try not to wait until you miss a few payments before you make this decision. Instead, be proactive and as soon as something drastic happens such as a looming redundancy or serious illness, put the property on the market at a competitive price.