A big part of the American dream is to own a nice house to live in and raise your family. I remember learning in college how the United States made home ownership possible for the average American by building a circle of money changing hands from the Federal Reserve to banks to people back to banks and so on. It’s great that the country is able to do this and help people live the dream but people have to realize that as Spiderman always says (my son’s favorite hero), “with great power, comes great responsibility”. Citizens should take advantage of these possibilities but they should not get greedy.
As everyone who has been paying attention over the last few years knows, there have been a record amount of foreclosures around the United States in recent months. There are many reasons for this but one of the reasons that was so predictable was people maxing out everything they had to buy more than they could afford. Many people that were foreclosed out of their homes figured out that maximum amount of money that they could spend per month at their current situation and made that number fit into the purchase of their new home. They took out adjustable rate mortgages that they hoped would never go up, or interest only loans and tried not to think about the future or ever paying the principle.
Maxing yourself out is too risky because as we unfortunately have seen too much of, is rates changing, property prices dropping, people losing their incomes and the slight changes could put people out of their homes.
I am suggesting to always keep a cushion between what you can afford and what you spend. When looking for a house, figure out what you can afford in the worst case scenario with a high interest rate and the most expensive mortgage. Then look for a house in that price range and try and get the best terms possible. That way if times change, you will be able to afford the difference. Also, just as important is to always have money in your savings account for a rainy day. You never know when you will need it.