Who came up with the idea of putting just 10 or 20 percent down when purchasing a home? And where did the 30-year mortgage come from? These are things I think deeply as I consider American housing industry. Of course, a home is probably the most expensive thing a person will buy in their lifetime, and true, the average American can’t pay for it with cash, presenting the need for a mortgage loan.
It turns out that when the mortgage was first introduced in the United States, borrowers paid 50% down and over the course of five years made interest-only payments. At the end of the five-year term, the remaining 50% balance was due.
Today, most people pay 10% – 20% as a down payment and get a 30-year mortgage. Experts advise that a mortgage payment be about 28% of your monthly income. They also advise to keep a home purchase within three times your annual salary.
After the housing crisis that began in 2007 or so, I see a need for a drastic change in the way people think about buying a home. I think buying a house should be a strategic financial decision, not just a sentimental one. After seeing what many families went through, including my own, I think people should aim to own their homes as quickly as possible. This means:
- Taking more time to think long-term about the purchase
- Staying on the conservative end of your price range
- Paying as much as possible on your mortgage every month
- Aiming to pay off your mortgage as soon as possible
A 30-year mortgage is a bet that you’ll have the same or better income for the next 30 years. That’s quite a bet to take. Take the steps above to avoid a stressful mortgage situation in the future.