Homeowners who are struggling with their mortgage payments hope that the government bailout currently being debated in Congress will bring them some relief. However, relying on the government as the only hope of avoiding foreclosure is unpleasant, to say the least. It's far better simply to avoid such a difficult situation. And the current crisis does provide lessons that can help homebuyers look out for their best interests in the future.
1. Just because a bank gives you a mortgage does not mean you can afford it. Remember, you are the one who has the best information about your ability to pay, not your bank. Banks’ incentives constantly change with the development of new financial instruments, No amount of regulations will alter this fact. You should not assume that the bank has your best interest in mind. It has its own best interest in mind, and this may or may not coincide with what's best for you. 2. Become informed. Find out about the different types of mortgages available before you apply for one. Understand the terms of your mortgage and the fees involved. Ask the bank to give you the mortgage contract a few days before signing it and read it. Do not be fooled by teaser rates at the beginning of the mortgage term, read the entire contract, understand the terms of it. Nobody has more information about your circumstances than you do, so it is your responsibility to select the mortgage that best fits your needs. The Federal Reserve offers a variety of on-line consumer information on how to shop for the best mortgage, how adjustable-rate mortgages work, what you should know about home equity loans, and other matters relevant to homebuying. AIER's own publication Homeowner or Tenant? How to Make a Wise Choice provides information on many mortgage options available to buyers, shows how to estimate the outlay as a homeowner or renter, and provides other useful information to help you make a wise housing decision. 3. Plan for the long term. It is your responsibility to determine whether you will be able to pay the mortgage. Do not take out the largest mortgage you can get. Take out the mortgage you can afford to pay. Do not expect that you will always be able to refinance your mortgage at better terms in the future. Refinancing the mortgage should not be your only option for paying it, you should have a Plan B in case you are unable to refinance. 4. Banks and real estate agents are not reliable sources of information about the future of house prices or interest rates. Banks and real estate agents (or anyone else, for that matter) are unable to accurately predict future prices. Besides, they have their own incentives. They are essentially sales agents, and you should treat them as such. When a real estate agent tells you that the house prices will rise for a long time and you will always be able to refinance your mortgage – do not assume it is true, even if the agent truly believes it. When a car salesman tells you that you will not have any problems with the car he is selling, you don't usually take him at his word, do you? 5. House prices do fall. Be realistic. Expecting that house prices will always rise at a fast pace will only get you in trouble.
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1) Buy the biggest house you can. Hopefully it goes up 20% next year and you can refi into a more comfortable payment. Otherwise, just walk away from the house and mortgage. Or, rely on the goverment to help you afford that house you can't afford.
2) Interest only, negative amortization, 40-year loans, 80/20, and ARMs are the way to go.....the less skin you have in the game.....the better.
The rules have changed for the worse......the government intervention will only prolong and magnify the mistakes made in the past decade.