1. Buy too much house. You fantasized about the day you could buy the house of your dreams. The house has everything you wanted or imagined. It’s in a great neighborhood, great schools, great amenities, and you take pride in having visitors. You are the envy of family and friends alike. Everything seems perfect, but is it really? You just moved out of a smaller, less expensive apartment or house. He figured he could handle an extra $700 a month. One problem with a larger house is a higher cost of maintenance and utilities. Utilities alone could add an extra $400-$500 a month that you hadn’t anticipated. You may not have thought about the HOA fees that must be paid annually. Many homebuyers make the mistake of getting excited when they buy a home. Calculate the cost first, and then determine if you can really afford the house you’ve dreamed of. You don’t want your dream home to turn into a real-life nightmare.
2. Go to a “poor house” home. Saved for the down payment and all closing costs. You paid creditors to boost your credit scores. You emptied your retirement or 401K to get all the funds needed to get into the house. Moving can be expensive and you just had to buy appliances for your new home. Okay, you did it, you got the house, but now you have little or no money left in your bank account. Here’s the problem, you just moved in and you’re going to have to live paycheck to paycheck. The utilities are due soon, as is the mortgage payment, and he has no additional resources. What if your car breaks down, you lose your job, or some other unforeseen situation occurs? Your best bet is to save at least 4-6 months of mortgage payments when you are considering buying a home.
3. Depending on a second job, spouse’s income, or inconsistent income. If you need a second job to make sure you can make your mortgage payments, you’re doing it wrong. If you have to rely on overtime to make your mortgage payments, you’re doing it wrong. If your spouse has to work so everyone can make the mortgage payments, you’re both doing it wrong. Maybe you have a commission-based income. What happens if the company reduces overtime or eliminates it altogether? What if the second job is becoming unhealthy for you? What if your spouse loses their job? Any and all of the above scenarios could occur. When you’re considering the purchase of your home, only consider the income you earn without overtime, a second job, or your spouse’s income. If you don’t have to rely on extra income, your quality of life will improve and you will really enjoy your new home.
4. Do not deposit taxes and insurance. In a perfect world, the 80-20 loan was a dream come true. In 2004, when I was selling houses for a production builder, the item that stood out more than any other was the 80-20 loan. The 80-20 loan works like this, 80% of the loan is amortized over 30 years like a traditional mortgage. The remaining 20% is a separate loan, usually at a higher interest rate. The loans run at the same time, but the 20% portion drops after 15 years. The benefit was that it allowed homebuyers the opportunity to purchase more homes. The 80-20 allowed homebuyers to pay their taxes and insurance on their own, allowing for a more manageable monthly mortgage payment. Okay, this is where it gets dangerous, YOU have to pay the entire tax bill at the end of the year. You must stay current with your insurance. If you don’t pay your taxes, you could lose your home to foreclosure. I found that only 25% of homebuyers who did an 80-20 were successful, the other 75% lost their homes in most cases. Opt for a traditional mortgage and keep your home.
5. Not paying on time. A mortgage works off impulse. The longer you pay, the more you pay. The danger of not paying your mortgage on time is that once you miss a payment, you are 40% more likely to miss a second payment and 75% more likely to miss a third. Why? Most people live paycheck to paycheck and don’t have several months of mortgage payments in the bank. By the way, when you miss the third payment, you will receive a certified letter in the mail notifying you of the foreclosure process. Don’t miss a payment! Do what you must, but don’t push a mortgage rock downhill.
6. Pay a high or adjustable interest rate. Just say no! Adjustable rate mortgages are probably responsible for the majority of foreclosures. If you’re offered a higher-than-normal interest rate on a home, don’t let your emotions dictate your decision. Stop, strengthen your credit and try again. Many homebuyers have been tricked into taking out adjustable mortgages. Home buyers were told they could easily refinance later, it never happened and when the interest rate got too high they lost their house.
7. Ignore the lender. Here’s the deal, you’re behind on your mortgage. Avoid your lender’s attempts to contact you. Don’t cut off communication with your lender. Communication is the key if you want to develop a strategy to keep your home. The lender doesn’t want the house from him. Most lenders lose an average of $50,000 when a home goes into foreclosure. Explain to the lender what is going on in your life. Whether it’s a job loss or something more personally catastrophic, you can probably find a way to keep your home. Remember, a silent voice gives consent.
