It is best to build equity in your home over a number of years. Your goal should be to pay your home off in 15 or 30 years or earlier, if possible. Then sell it, and live off the proceeds as part of your retirement, or leave money to your heirs to start their own home.
Should you decide to acquire a new home loan your income should easily support the new payment. If you do not have an income or your income is limited, you should not acquire a new loan. A loan has to easily supported by your income NOT your equity. The income you have is what you will pay your monthly income from.
If you do acquire a new home loan you should:
1. Have income to easily support your home loan.
This sounds like a simple concept. But, for many who want a home they think, “buy the home first, then figure out how to pay for it”. Please don’t
put the “cart before the horse”, so to speak. You make yourself susceptible
to bad loans and bad lenders when you buy a home before you have done
your research and determined that you can afford a quality loan. The keyword being quality. The high quality loan, the more qualified you are
the more likely you are to stay in your home long term, build equity, and
retire without a payment, because it will be paid off by you.
2. Have researched an affordable, high-quality loan yourself or have a relative research one for you. Compare several home loans, read the fine print, ask plenty of questions, understand all of the terms of the loans. See home buying at Msfinancialsavvy’s home buying course where you will
learn over 100 ways to successfully buy a home. It is targeted to women,
buy of course men will benefit too. Home buying is tricky, so I recommend
you take this very inexpensive home buying course well in advance of
buying a home.
3. Make sure the appraised value of other homes in your neighborhood substantiates the added cost of a new or additional home loan. Understand and verify in writing you have a high-quality loan with no balloon payment attached. Some home buying purchase a home based on emotions and not
all of the facts they need to make sure they are not cheated. You can easily
over pay for a home when you buy on emotions. This can happen if the sellers lie about amenities or if the neighborhood is going down in value,
so for instance you check the last four home sales in the area, but home
values are trending down, so you get a home that you could have negotiated way down if you had this information.
4. Understand in writing, the actual interest rate of your loan, obtain an interest rate you can afford or do not obtain the loan. Sometimes interest rates change before signing for your new loan.
5. Understand it does not make good financial sense to replace a loan that is nearly paid off with a long-term loan of 15 or 30 years. Once you have your home paid off you are home free. No more payments, you can call it rent/mortgage free, so DON’T mess it up at this time. Especially if your income is not set after retirement, you don’t want to increase your liabilities with a new loan if you are not increasing your income.
6. Visit, www.fdic.gov (see “looking for a mortgage”)
There has been a lot of information in the media lately about predatory lenders, they prey on the poor, under-educated home owners with lots of equity in their homes. If you know of anyone in this category educate them about the dangers of unsolicited home loans or home loans with potential balloon payments.
Remember; do not forget to read the fine print. Also, if you don’t have a job, don’t get another loan. If you need a business loan, don’t use your house; get a bank business loan or Small Business Administration loan, see www.sba.gov. Another option is to delay starting a business until you can acquire proper funding.