When you’re in a tough situation, one that you cannot escape, many people feel compelled to shut down and to be angry at the situation.
The most successful people, on the other hand, know that they can learn something – even in a less-than-ideal situation. The same applies to the United States Housing Market Crash of the early 2000’s. With people losing housing left and right and the financial industry in tumult, it was difficult to focus on the things that we could learn from what was happening. But now that we are a few years away from it, we can learn several lessons from the events.
Here are three lessons that we would be wise to learn from the Housing Market Crash.
Adjustable-Rate Mortgages Should Be Treated With Extra Care
If you’ve decided to go with an Adjustable-Rate Mortgage, after doing your homework and deciding that it’s the best option for you (and your family), there are some important things to know about this aspect of your financial life.
For one, Adjustable-Rate Mortgages can be dangerous. When your rate changes, if you aren’t financially ready for it, you can end up in a tough situation. So look at the rate changes and plan for them. It’s not enough to hope that you will earn enough to cover the increased payments – make sure that you can.
The second thing you should know about an Adjustable-Rate Mortgage is that it should have a major impact on your emergency fund. Depending on your financial situation, and your lifestyle and healthy, the amount that you should have in your emergency fund varies. But if you have an Adjustable-Rate Mortgage, that amount should increase substantially. This is because life is full of risk. Who knows what tomorrow will bring? Car issues, medical bills (for you or a loved one), and unemployment could always be right around the corner.
Add on that an Adjustable-Rate Mortgage that just went through a rate change? You’ve got yourself a situation nobody ever wants to be in. So, be sure that your emergency fund can juggle emergencies and your Adjustable-Rate Mortgage, should the need arise.
Being Self-Employed Can Be Even More Financially Dangerous Than You Might Think
Deciding to strike out on your own can be scary, and it turns out that it might be even more precarious than you would imagine. Just before the Housing Market Crash, many people felt so financially secure that they decided to leave their jobs and work for themselves. Then all was well and good until the Crash.
Shortly after, many self-employed individuals found themselves in situations where a loan (whether small or large) would be helpful (if not necessary). Sadly, one of the first questions the lenders asked these would-be buyers was “where’s your proof of employment?” The end to that conversation, for many people, was a let down. They found that they could not borrow all (or any) of the amount that they wanted to borrow. And so they found themselves facing foreclosure, bankruptcy, and the need to find a new way forward.
Putting As Little Money Down as Possible Can Point to A Bad Situation
When someone has found a home that they are excited about, it’s time to sit down and do the paperwork and figure out how everything is going to work. Part of that process is figuring out how much money you will invest as a down payment. Now, it has become fashionable in real-estate (and life in general) for people to offer zero-money-down.
Though this can be attractive, it can be a trap. Zero-money-down today can mean large fees or larger costs later, because the lower your down payment, the more time you will spend paying for your home and the more you will pay in the end. If you do find the zero-money-down option attractive, it’s a good idea to consider why. If it’s because you don’t have the money to comfortably purchase the home, then it might be a good idea to look for a home with a lower price tag. Also, it might mean that it’s a good idea for you to wait a little longer, save money, and then have another look at the housing market when you’re at a better place in your financial life.
They say that those who do not learn from their mistakes are doomed to repeat them, and that smart people learn from their mistakes, but smarter people learn from the mistakes of others. During the Housing Market Crash, there were plenty of mistakes made. Keep the lessons about Adjustable-Rate Mortgages, how self-employment can affect your borrowing capabilities, and down payments in mind as you go into the future of real-estate, so that your next property purchase will be part of a wave of great financial decisions, not tragedy.