When Am I Ready To Take Out A Mortgage?

During this past decade, many of us became spoiled. Some banks were offering mortgages with hardly any money down, and others were offering future homeowners the opportunity to buy a house and only pay the mortgage interest for the first few years. Obviously, this was not a good formula for success. The recession of 2008 hit the housing industry hard, and it still hasn't recovered.

Because of this, banks have drastically sharpened their lending standards and criteria--some of this has been mandated by the federal government, and some of it is a desire by banks to take toxic assets off of their balance sheets. Because of this, future homeowners must go to greater lengths to prove that they can afford a home than they had to in years past.

This is not such a bad thing, though. The more money you can contribute up front to a down payment, the lower the amount of your wealth that you have to ship to banks in the form of interest payments. The best advice to follow is that you should prepare for a mortgage the same way our grandparents did. Make sure that you can make a 20% downpayment on a home, and do not purchase a house that exceeds 5x your annual income. If you follow this conservative advice, you will be fine in the long-run. You don't want to stretch yourself too thin and find the local bank foreclosing on you when another recession hits us here in a few years.