Written By The Simply Homes Team | November 3, 2022 | 4 minute read
For many, getting a mortgage and owning a home is a major life milestone. Owning property gives one a sense of pride. After all, it is the result of hard work and strong financials. However, life can throw unexpected curveballs. Pandemics, recessions, layoffs, natural disasters, and simple bad luck can disrupt the best-laid plans.
In these scenarios, income can drop, mortgage payments may become too much, and you may feel trapped. If you fail to make payments, the bank could foreclose the property, ripping it from your hands and giving you little control of the process.
“In many cases, this [foreclosure] is beneficial as the lender might waive your responsibility for any remaining balance. But this isn’t always the case, and you may still owe. On top of that, this will get reported negatively on your credit, affecting your chances of finding another place.” — Souki Fournier
Try to recognize when mortgage payments are too much so you can make strategic moves to avoid financial disaster. Here are four factors to look out for.
If your income is looking like a cookie and your mortgage gives off cookie-monster vibes, your mortgage is too costly. In more specific terms: If your monthly payment is more than 30% of your income, it is too much.
For example, let’s say that you make $6,000 a month. In that case, 30% of $6,000 is $1,800. If you pay $1,500 a month on the property, you would be in the clear — but if you pay $2,500 a month, your mortgage payments would be too much, and it would be time to consider ways of getting out of the payments.
As mentioned above, life is always ready to throw new curveballs at us. Our once steady household income could drop unexpectedly. This could come from layoffs, divorce, illness, or death. These events are impossible to plan for, and you can’t blame yourself if your finances are hit by them. However, if your income drops, it may be time to reconsider payments.
Adjustable-rate mortgages are usually attractive to new homeowners as they provide tempting low rates. However, for a fixed amount of time, those rates can jump and sometimes even skyrocket.
Let’s assume once again that you make $6,000 a month. If, after several affordable months of paying $1,500 a month, your mortgage interest suddenly shot up, your monthly payments could be well above 30% of your income. If you find yourself in a situation like this, you should start looking for ways to make more income or sell your property.
One of the unexpected wrenches life can throw at us is a drop in a home’s value. Sometimes the homeowner is responsible for a drop in value. If Jake put off regular maintenance and damaged the property, the home’s value could drop from the price he bought it for (and has a mortgage on). However, some of the factors are outside of a homeowner's control.
The main mantra of every real estate agent is “location, location, location.” Let’s say you bought a house in the made-up town of Happyville. Everyone wants to live in Happyville, so the homes cost a lot, and you had to agree to a very expensive mortgage. However, a few years after you own the house, Happyville becomes a very bad place to live. Nobody wants to live there, and your house is worth less than what you agreed to pay for.
In real life, these situations frequently happen with rising and falling economies, job markets, crime rates, and more, and they are usually outside of your control. However, you will still owe the same payments on the property, an investment you will probably not see a return on if the location's downward trend continues.
Tip: If you find that your property’s location is dropping in value, your mortgage may be beyond your financial means.
If your mortgage payments are too much, you will want to sell the house. If the bank has already listed a pre-foreclosure or a foreclosure, you may be forced to short sale. This is an unfortunate situation where typical realtors will try to buy your house for less than it is actually worth.
Ideally, you should find a buyer who can make an as-is and cash offer on your home. As-is means the buyer will take the house in its current state, so you won’t have to waste money on costly repairs. A cash offer means you will get the proceeds from the sale right away, which is perfect for people trying to escape the time bomb of foreclosure.
You can find a fantastic cash and as-is offer in as little as 30 seconds with Simply Homes. Simply uses cutting-edge technology to give you the best offer possible as fast as possible. If you sell with Simply, you can escape overbearing monthly payments as fast as possible.
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