Choosing A Home Loan – Not Just a Financial Decision
When looking for a home and eventually a loan, the first thing that comes to mind is finances; can we afford this home? This very important question is often forced to the side when the desire for the house overshadows the practicality of owning it. People say all the time that they love a house and can envision raising their family there, "but, it's really too expensive for us" or "it's an ideal home, but it's at the top of our price range." The realtor's response or that of a trusted lender is, "we'll find a loan that will get you the house you want."
Over the past few years, lenders have become more and more creative with their loan options, either to get us the house we should not be in (but want), or to get us in any house, because (depending on what part of the country you live in) no one can really afford a home the way the market is. They want you in the home you want, and of course, they want to profit from your decision. While they may create a loan that gets your in the house, will it really be the wisest choice for your family financially and emotionally?
As home owners, we seldom think about the emotional aspects of our financial choices. One of the major causes of divorce is financial strain. I'm curious whenever the rate of divorce in our country will increase with the rate of foreclosures. Why? Monetary stress eats away at even the healthiest of relationships. You may have a beautiful house, but is it a home? When considering a home purchase, choose one that you will be able to enjoy on every level, not one that you will have to sacrifice family time and peace of mind to maintain.
Back to loan options … I bring this up because I now find myself in a home I certainly could not afford it when I bought it. Can anyone really afford a half million dollar house that looks exactly like everyone else on the block and was issued in two weeks without any true workmanship involved? Forgive the cynicism, but I live in a Southern California tract home – you'd have to live here to understand the monotony of housing tract after housing tract of uncreative edifices. Anyways, the home was great and the sellers were desperate, so we bought. We chose an option ARM loan that basically lets you "pick a payment" each month. Are there really people who are responsible enough to actually choose the full principle and interest payment? If you could have done that in the first place, you should not be in an option ARM. What people do not understand is while the payment may be comfortable, you are actually increasing your initial loan amount monthly; the difference between the payment you make and the full interest payment is added to your loan. Say your full interest payment is $ 2000 and the payment option you chose this month was $ 1000, the remaining $ 1000 is now added to your original loan amount. That may not seem like a big deal, but that is a loan increase of 12K a year and 24K in two years. Now, I was fortunately enough to have put down a substantial down payment and the house value increased considering the first year, so I had breathing room. But if you bought your house at the end of real estate boom, your house has since stayed where it was, or possibly decreased in value. An option ARM seemed like a good idea to get you in the home, but it has since lead to trouble, because after continuing adding to your initial loan amount, you have no equity with which to refinance and you still can not afford a full interest payment. There are many people stuck in this scenario, but let me save you the financial and emotional strain – purchase a house you can really afford.
Make a home purchase that is both financially and emotionally healthy. There are enough trials and temptations in our world to stretch you in your relationships, do not contribute to them by trying to live the "American Dream." The American Dream should be having a happy and properly functioning household dwelling in a home that contributes to your joy. Do not try to reinvent happiness with 5 bedrooms and 4 baths spread across 3000 sq. feet of space. Dwell securely in 1600 sq. feet of peace. The majority of the world lives in a fraction of that.