Previously I mentioned my friend who found himself in a bad situation because he rushed into buying a home. We catch up with him, still living in the same house with the same back breaking mortgage and the same ridiculous pre payment penalty.
I’ll say this a million times if I say it once home buyers, do not under any circumstances sign a mortgage that contains a pre payment penalty. You will regret it to the point where you eventually will hate the house you bought and almost certainly feel bankruptcy is your only way out.
And for you realtors who are reading this, if you have a shred of decency, you will thoroughly educate your clients on the ramifications of entering into a contract with a pre payment penalty. Granted, the final decision is the home buyer’s. However realtors, you have a responsibility to ensure that the home buyer is knowledgeable and well informed about the contract they are signing.
Far too many times realtors are more interested in closing the deal and getting paid then concerning themselves with the financial health of their clients, often times justifying their actions by telling themselves that “They (the buyer) should know better”.
That brings us back to the question, “How did my friend avoid bankruptcy and manage to keep his marriage in tact?”
Throughout this whole ordeal he has managed to abide by a simple set of rules which have enabled him to persevere. Here they are:
Determination – a person who is determined to succeed does not allow circumstances to dictate the choices they make. Instead, dig in to your position and consider this war. Don’t let your enemy, or mortgage, force you to quit.
Resilient – Don’t allow your financial situation to overcome you and your family. My friend manages to find new and interesting ways to make that monthly payment even when it looks like he’s on his last leg and about to fall hard.
Accountable – he could’ve filed bankruptcy to get out from under the burden of that mortgage, but never considered that an option. Instead, he accepts the fact that he made a bad decision and instead of compounding his problems by making another bad decision, he chooses to work hard and finds various ways to overcome his problems.
Responsible – he knows how much money he needs to make each month to pay that mortgage and somehow manages to find a way to earn that every month.
Discipline – he knows that this house is a valuable asset even as much of a burden as it is to keep it, and pays the mortgage each month. Instead of spending money frivolously on drinking away his woes, or partying with friends to avoid his troubles, this guy steps up and takes care of business.
This mortgage could’ve bought a half million dollar house. The house they live in however, while nice, is very small, in a decent neighborhood, but its worth less than half of what they could’ve bought, if they had better credit, a larger down payment and a realtor who was looking out for their interest.
The worse part is, any equity they might have accrued over the two years they’ve lived in the house will be stripped away immediately if they sale the house, due to the pre payment penalty.
In conclusion here are several things you should know about buying homes:
- Don’t make hasty decisions when buying real estate.
- Know the realtor you’re dealing with is looking out for your best interest.
- Do not assume that your realtor is trustworthy.
- Check out your realtor’s references
- Call your realtors past clients to see if they’re satisfied with their transaction
- Check with the Board of Realtors in the state the realtor is licensed to see if there have been any complaints against your realtor.
- If your realtor insists you use a certain mortgage broker, be very careful. This could mean they have something to gain from you using their mortgage broker, and will allow you to walk into a mortgage nightmare.
- If possible find your own source of financing. I’ve used both Eloan and Lending Tree and have found both to be extremely positive.
- Get pre-qualified for the amount of money you can borrow. This will save you many frustrating moments when looking for a home.
- Save for a down payment before you start looking for your new home. Many lenders offer no money down loans, but the penalties for this are severe.
- Read your contract carefully
For more information on buying and selling please contact a qualified Realtor.