Buying a place of our own can be part of the American Dream for many people, however, there are lots of us that do not manage it. For most of us, we would need a mortgage in order to afford it and the idea of debt can be a worry. It is important though to understand about different types of debt and how these fit in with buying a home.
Good
and bad debt
It is easy to see all debt as bad. We hear about
people who get into all sorts of trouble with debt and this can make us worry
that this could happen to us as well. There is a risk, but if we stay in
control and only borrow what we can afford to repay then this should not
happen.
Bad debt is when you borrow money to buy luxury items that are not necessary, you take out expensive loans and do not check to make sure that you can repay them. We hear a lot about this and it can put us off borrowing money. We may even know people that are struggling with debt repayments at the moment.
Good debt is when you borrow money to better yourself and mortgages would be put in this category. However, in addition you need to make sure that you pick a mortgage that is good value for money and one that you can afford to repay. This means that you need to do a fair bit of research before taking one on. If you do this and are confident then a mortgage debt could be a very sensible thing to take on.
Mortgage
debt
There are lots of lenders that will help you out
when you want to buy a home. They will do a credit check though, so you need to
be aware of that and make sure that you have a good credit score. You can check
your score and it is wise to see if the record is correct and then think about
what you might be able to do to improve your score. This might mean that you
will need to pay off other debts that you have and make sure that you are
making all payments that you need to for utilities and other contracts.
It is worth being aware that a mortgage will be a very long-term loan. You will probably repay it over several decades and so you will need to make sure that you have the money available to pay all of the repayments. It can be hard to know for sure, but think about what your future plans are and whether you think that mortgage repayments will fit in with those. If you are planning to travel, have a big family or to buy huge amounts of things then you may find that these plans will get in the way of your mortgage repayments so you need to consider whether it would be the right decision. If you are currently paying rent, then you will not have to do this once you get a mortgage so this could help you to afford the payments that you have to make. You may even find that mortgage repayments could be lower than rent in some situations but you will have additional costs to pay that renters do not such as insurance for the building.
As long as you are buying a home that is likely to keep or increase in value then a mortgage debt would be considered as good debt. However, you will need to compare different lenders in order to make sure that you are getting the best value for money from them. You will also need to be really sure that you will be able to make those repayments.
Is
mortgage debt worth it?
Whether a mortgage debt is worthwhile is really a
very personal decision. You will have to think about whether you will be happy
being in debt for all of that time. Of course, you will be rewarded with a home
that you own and no more rent to pay. However, you will be responsible for
maintaining that house and insuring it, which could be expensive. It is worth
giving the matter a lot of thought in order to decide what you would like to
do.
It can depend on many factors. You need to think about how you feel about debt. If debt makes you feel stressed and worried, then you may want to avoid it at all costs. You may also be worried that having a mortgage may lead you into other debt, but you will know yourself whether this is likely to happen. You will need to think about the cost of owning a home compared to the cost of renting one and whether you feel that it is worth it. A mortgage can be a good debt and therefore not something that you should be worried about. However, you do need to think about whether it will suit you personally.