home ownership mortgage

Rethinking home affordability

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:

  1. Taking more time to think long-term about the purchase
  2. Staying on the conservative end of your price range
  3. Paying as much as possible on your mortgage every month
  4. 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.



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