Purchasing a home is a huge step and should not be taken lightly. Many people seem to rush into purchasing their homes and get themselves into serious trouble as a result of poor planning. This article will discuss the traps of interest only mortgage and how proper planning might save you time and money in the long run.
Interest only loans are a great way to get into a property without spending too much on your mortgage note. But you may want to consider the area in which you live and do your research before you make your final decision on going with an interest only loan.
Let’s look at an example. During the years of approximately 2001 to 2003, there was a massive boom in the real estate market. Properties were moving like crazy and, as a result, property values were shooting up. People were over paying for houses by the thousands. If you were to buy a home under an interest only mortgage during these periods, your investment was pretty much safe. People were buying homes with five to seven year interest only periods and did not have to worry because your home would be worth many thousands more the following year.read review here!
Well, this market has currently slowed down, and this is where you might find yourself in a bit of trouble. If you bought a property in the current market and used an interest only mortgage, you may have found that your property has lost a little of its value. Now you are stuck in a situation where your mortgage has the same value, but your house is now worth less than the mortgage. You now have to wait for the housing market to turn itself around again before you can sell your home.
So if you are thinking of interest only loan, make sure that you know what kind of real estate market in which you are attempting to buy.
Analyze Your Budget
Always make sure you do a budget analysis before considering buying a home. In this analysis, you want to make sure that you take into account all of your incomes and all of your debts. Consider all income such as your job(s) and any other steady income you have come in. If you have other income that is not that steady (e.g. helping around the neighborhood doing landscaping) do not include it. The only income that comes in on a steady basis should be considered.see post from http://www.nytimes.com/2016/02/21/business/dealbook/market-for-fixer-uppers-traps-low-income-buyers.html?_r=0
Consider debt such as credit card debt, student loans, car notes, etc. Make sure that you do not forget anything because it is easy to look over some bills if you are not careful.
Take both of these numbers (your total income and your total debt) and write them down. If your debt is more than 40% of your gross income, you may want to reconsider purchasing a home until you get that 40% down a bit. What that number should be is about your situation, but you can probably figure out, the lower the number is, the better off you are going to be and qualifying for and purchasing your home.