September 15th, 2020
The Two Biggest Issues We See New Homebuyers Make
At the very end of the movie The Big Short, Ryan Gosling’s character, Jared Vennett, makes some joke commentary about how the Financial Crisis completely changed the way people manage their money and how everyone learned their lesson.
He quickly pivots back to the truth and states that withinjust a few years…the world began to revert to pre-Crisis traits.
Two catalysts that fueled the financial crisis are two of the biggest mistakes I see homebuyers making today.
Taking out adjustable rate mortgages and not making a suitable down payment.
- Adjustable rate mortgages (ARM) – you expose yourself to unsustainable interest payments and an increasing monthly mortgage payment. Both of these things increase your likelihood of default.
- Down payment – those lacking a suitable down payment typically have to pay PMI (private mortgage insurance) each month, increase the overall cost of their home purchase, and put themselves at risk of being underwater on their mortgage.
Both actions are psychologically the result of the need for immediate satisfaction.
By taking out an adjustable rate mortgage, the homebuyer initially has a much lower monthly payment.
By not making a suitable down payment, the homebuyer does not need to go through the exercise of saving up for the payment which means they can buy the house much sooner.
Having a financial plan keeps you stable during the “gulleys”.