There are tricks you can use to forestall losing your home if you are in trouble. But if you haven’t made your payments and have no ability to do so soon, you’re going to lose that property sooner or later. That’s a fact and I know this first hand.
My dad lost our home when I was a kid and it was terrible for everyone involved. It’s the kind of thing that stays with you for a very long time. It’s not just a transaction that goes bad. It’s part of your life fabric. For that reason, it’s far better to stay out of trouble than to try to maneuver and try stop a sinking ship from sinking. Here’s how:
1. Be Honest With Yourself
The key to never losing your home is to buy one you can really afford now and down the line. Your income is important but that’s not all there is to it. We’re talking about financial stability over the long haul too. Think about this before you buy.
It’s great to have self-confidence and high self-esteem. But when it comes to taking out a mortgage and being able to make payments for the next 30 years, you have to be objective.
Look at yourself as a creditor would and be brutally frank. If you had a double and she came looking for a loan would you loan her all that money? Would you rely on your clone to make the mortgage payments come rain or shine? Are the payments affordable or are they a stretch?
Before you answer those questions, take a look at your own history to have an objective opinion of your own ability to keep up the payments for years to come:
- How long have you lived in the home you currently live in?
- How long did you live in the house before that?
- How long have you had your current job?
- How long did you have the job before that?
- Do you have any reason to think you might lose your job over the next 3 years?
- Do you have any credit card debt?
- If so, why do you have consumer debt and when did it start?
Your answers will tell you how financial stable you are. Run your own credit report and have a look at how creditors see you. That will give you a great sense of how likely it is that you’ll be able to make your mortgage payments.
2. Stay In Your Comfort Zone
When you buy a house and take out a mortgage it’s a long-term proposition and you can’t possibly know if you’ll always be able to make your payments. That doesn’t mean you should move into a shoe box. It means you have to be conservative, plan for the worst but hope for the best.
When you consider how much you can afford to buy, consider your monthly all in costs. That includes maintenance, taxes, insurance and non-recurring repairs. The unfortunately truth is that it costs a lot more to own a home than you think. Be prepared Pilgrim and don’t get in over your head.
3. Emergency Cash
Homeowners need to be able to get their hands on money fast in case of unforeseen expenses. How much should you set aside? There is no good “rule of thumb”. It all depends on how stable your income and expenses are, how liquid your investments are and the condition of your property.
I like to have $10,000 available for home repairs in addition to my other emergency needs. If you are a seasoned home owner, look back over the last 3 years and calculate your most expensive financial emergency during that time. Chances are good that this number is a great baseline to start figuring out how much more you might need.
Life is full of surprises. Not all of them are pleasant. Even if you buy a house within your means, you have to consider the possibility of premature death and/or disability. Not everyone needs life insurance and not everyone needs disability coverage. But if you are light in either of these areas and aren’t able to self-insure, your family could lose your family home (and worse) if something terrible happens to you.
The good news is you can buy term insurance very inexpensively and that’s usually a far better deal for people trying to protect their home than whole, universal or variable life.
5. Think Ahead
If you buy within your means, have adequate emergency funds and life and disability coverage you have done all you can. But sometimes things go sideways despite your best efforts. If that happens, you need to get in front of the problem fast.
If you are in a financial storm and you don’t see a quick remedy, put your house on the market sooner rather than later. The longer you wait the less time you’ll have and the greater risk you run of needing to sell at a big discount and/or losing your home to foreclosure. That will wreck your credit score and be a difficult hole to crawl out of.
Losing a home is expensive and traumatizing. Before you buy your next home, take these 5 steps to reduce your chances of having to deal with this problem. What other tips do you have for readers who want to safeguard their home?