The American Dream! We bust our butts day in and day out to achieve it, but what exactly is that anyway? If you ask most people they’ll say a key part of it has always been home ownership, and so many rush into it buying the best house they can. However, there is such a thing as too much of a good thing. This week I show you a healthy 4 part recipe to help ensure you don’t turn the American Dream into a nightmare.
Let me be clear, a mortgage is the one kind of debt I don’t shout about! ???? BUT, only when these 4 criteria are in place. I’m always in favor of the 100% down plan but I know that’s pretty hard in our day and age. This is the recipe for healthy home ownership so take notes and when you are ready to own use it!
1. Have a 20% Downpayment
This is the #1 thing that will keep your monthly mortgage payments as low as possible. The less you owe the less you have to pay each month! With most lenders this is also required to avoid PMI (Private Mortgage Insurance) which adds $80-$100 per month to your mortgage payment for each $100K borrowed. BTW, I think PMI is the dumbest thing on the planet. I get the reasons for it but I take huge issue with lenders having to pay for insurance that is not for them but rather for the bank. I’ll stop short of ranting… One more reason to AVOID IT!
2. Use a Conventional Mortgage
Conventional mortgages are typically the lowest fee and best rates of the options out there (yes even better than VA loans!). Often times this is the type of mortgage that goes hand-in-hand with a 20% downpayment. They usually also have less steps towards the closing process making this 2nd most stressful event in your life that much easier.
3. Stick with a 15 Year Term
You always hear “I’m going to get a 30 year mortgage to keep my payments low and just pay it off like a 15 year”. RIIIIGHT. How often does THAT happen? You know what always pays off in 15 years? A 15 year mortgage. This is literally a decision that can cost or save you tens of thousands of dollars! Who came up with the magical 15 and 30 year numbers anyway? Did you know those aren’t your only options? They are just the most common. Think outside the box! Stick with the 15 year term to ensure your success (and that it’s paid off well before retirement)!
BTW, what could you do with a paid for house? ANYTHING YOU WANT!
4. Fixed or Bust
Especially in 2017 there is nowhere rates are going to go except UP. Stick with a fixed rate mortgage. Don’t be sold into all these “better terms” if you take an ARM (Adjustable Rate Mortgage) or Variable rate that will later convert into a fixed or any of that junk. Remember, this is an investment and you need to stick with it for the long run. In the long run this is what will be in your best interest.
Plus, it is just one more thing you need to pay attention to later that requires your attention; not to mention the adjustments you have to make in your budget every time the rate changes!
So there you have it! A simple 4 part recipe for secure home ownership. I hope you’ve found this helpful! Not sure how this is possible? Concerned about credit score? Read this article to learn more about your broader options you often don’t get told about!
Question: What did you learn today and more importantly, what are you going to do about it? Share in the comments below!