Just as quickly as things fall into place life happens and the unexpected becomes a reality. As a homeowner, protecting yourself against financial hardship is crucial to the success of maintaining a mortgage and avoiding foreclosure. While there is no guarantee that any unforeseen circumstance can be controlled by preparation, you do have a far better chance than someone who hasn’t taken action to set themselves up for successful home ownership.
One of the biggest mistakes people make when getting into a mortgage is buying at the top of their range. Even if you qualify for a $300,000 loan, that doesn’t mean you can truly afford to keep up the payment on such a large loan. When looking to buy a home the most important financial detail you need to know is not how much you can qualify to borrow, but how much you can afford to pay each month.
Your monthly budget is extremely important to your ability to keep up with a mortgage payment. Remember that you won’t need enough to just cover the mortgage payment, but also fund repairs, costs for maintenance and even emergency fund savings. Most people have very little in their savings account, let alone enough money to cover the mortgage for a few months if they lost their job.
Because you can never expect the unexpected, having a mortgage emergency fund is a great tool for staying on track. Having at least three to six months worth of mortgage payments saved in an account can help you maintain your payments during a financial hardship. Further, this money gives you more time to resolve your mortgage debts and negotiate a foreclosure alternative such as loan modification or forbearance with your lender.