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By now, everyone has heard of someone or has read about someone that has been affected by the mortgage crisis.  There is enough blame to go around for many different players in the mortgage bubble that collapsed, taking many people’s home equity away with it, but the truth is that many of the foreclosures that have been seen were because the person took out an exotic mortgage loan to finance a house that they could not afford. 

In the buying frenzy of the moment, many of these people opted for adjustable, teaser rate loans with the belief that they would always be able to find a buyer to purchase the home for more than they had paid for it and they could get out from under the mortgage loan before the interest rate reset to a higher rate.  When the mortgage bubble collapsed, many of these people found themselves stuck in a home that they could not sell and owing much more on the mortgage than they could possibly afford.  The result was that a wave of foreclosures swept across the nation, leaving the banks owning many of the homes that they had signed loans for just three or four years earlier.

If you are in the market to purchase a house today, there are some rules of thumb that you should follow to make sure that you do not find yourself in the same trap:

1.  The 30 Year Fixed Rule
Many of the people that are in trouble with their mortgages today chose adjustable rate loans so that they could purchase a larger house with less money down and lower initial monthly payments.  Honestly, if you would be unable to afford the mortgage payments at the 30 year fixed rate for the loan, then you should not be buying the home because the price of the home will place an economic hardship for you.  Because the 30 year fixed rate loan is considered one of the most reasonable loan products available for mortgage loans, this is the type of loan you should be pursuing when looking for a mortgage loan.

2.  Do Not Purchase A Short Term Home
Although owning your home would seem to be an attractive solution in any case, purchasing a home to live in it for a short period of time can be a tremendous waste of money.  If you are not planning on being in the home for at least 7 years, then the fees that you have paid for the purchase of the home and the fees that you will pay for selling the home and for paying off the mortgage loan early will erase any monetary gains that you have made while staying in the home.  Add in the cost of repainting and repairing everything that is needed to get the home ready for sale and you may be losing a great deal of money by moving out of the home within a short period of time.

3.  Be Aware Of The Fees That You Are Paying And Why
As many of these foreclosures and personal bankruptcies work their way through the court system, many people are finding that the fees that they were charged for their mortgage loan were well beyond and above what they should have been paying in fees.  Some of the brokers originating the loans were adding additional fees into the loans as vague entries in the hopes that the person signing for the loan would not notice.  Make sure that you know about each of the fees that are being charged on your mortgage loan and what they are for.  If you do not know what a fee is for or why it is the amount that it is, do not sign the documents until all of your questions have been satisfied.