The Foreclosure Crisis Calls for New Caution from New Buyers

September 21st, 2009 | Tags: Foreclosure Crisis

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The foreclosure crisis calls for new caution for new buyers because the borrowers were also largely responsible for buying repo homes with loans they did not understand. Another mistake was that they took it for granted that real estate prices could never fall but go on increasing. This would enable them to refinance their loans before the interest rates increased.

Many were over confident about their earning capacity and never dreamt that unemployment would reach astronomical proportions affecting each and everybody.

The novice buying a house should be wary of the unknown. There are children and their future. Parents will abhor the idea of haggling with mortgagers trying to snatch the roof from above the head of the baby.

Financial planner Bobbie D. Munroe of Fraser Financial in Atlanta encourages the young buyers to chalk out their budget that will include the mortgage payment. Taken into account will be three alternatives – the situation when both are working, when one is a part time worker or when the family is surviving on a single income. She explained, “What people should do is ultimately their own decision. But they should do it with eyes wide open.”

Even those who do not have kids should take this into account. Apart from the problem of an unemployment crisis there are other factors like mid-life blues that might require a need to change the career path or escape from a dying crisis. Ill health – either mental or physical is always a big threat that is ever present and should not be forgotten. All the possibilities should be considered when taking a loan. Nothing might happen but it is better to play safe.

The expenses need to be mapped out ahead. It will be a mistake to over reach while budgeting to buy a house while simultaneously playing down maintenance costs. These expenses are unavoidable and should be included.

Dennis G. Stearns has been a financial planner in Greensboro, North Carolina for many years. He has noted with alarm the unrealistic expectations of his clients for future clients who come to him shopping for a house. According to his calculations 3.6% of the purchase price usually goes for maintenance of a new house; for an old one it is 4.5% .

Thus for somebody who owns a house worth $400,000 the annual maintenance cost will touch five figures. With inflation it will climb to higher niches.

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