From what we have seen in the past few years with many people losing their homes, most are hesitating to commit to purchasing. Here is a handful of rules today’s homebuyers and homeowners can follow to dramatically minimize the chances they will ever face losing their homes:
1. Never a borrower or a lender be.
- A good (albeit conservative) place to start is this rule: Decide not to borrow against your home equity for anything but well-planned home improvements.
- Whatever you do, don’t borrow against your home to lend money to someone else. Homeowners over the years borrow to make an “investment” in a friend’s business or to lend money to a child or a parent. Borrowing against your home’s equity to make an investment in a business you know nothing about is a complete gamble with your home.
2. Stop financial codependency.
- I see this come up the most often when homeowners borrow money against their home or tap into their emergency cash cushion to help an adult child make their own mortgage payments or bail them out of another crisis situation.
- It also comes up where one spouse supports another spouse’s habit of overspending, debting, underearning, gambling or even substance abuse, and ends up going into a financial hole as a result.
3. Stay conscious.
- Many money experts recommend automating your monthly payments so that your recurring bills are paid on time, every time. The problem is that once you automate your payments, it’s very easy to fall into the habit of simply ignoring your actual statements — and they may contain information that flags issues before they snowball into serious problems.
- Financial autopilot mode can support habits like overspending and overdebting; the minimum payments may always get made without much attention from you, but the overall balances will possibly pose a threat to your ability to pay your mortgage, in the event you ever face a job loss, medical bills or other financial crisis.
4. Do your own math before you buy.
- Things like catch-up retirement savings, tithing and charitable giving, private school tuition, medical costs and the like can take big chunks out of your monthly budget that your mortgage pro is not accounting for when he or she tells you how much of a mortgage you’re qualified to borrow.
5. Don’t buy a house to fix a family or psychological problem.
- It is cautioned against expecting the move to solve the problem on the grounds that, in the words of mindfulness guru Jon Kabat-Zinn, “wherever you go, there you are.” If you have bad habits in Chicago, moving to L.A. doesn’t purge the bad habits — only working on the actual dysfunction itself will do that.
- The larger the financial and maintenance obligations that come with a home, the more a mortgage and property taxes can add strain to already troubled relationships.
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