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Usually the bank or lender is supposed to check and make sure you can afford a loan amount - that is you can pay them back. Therefore in a sense they would limit you from over committing because they would not "qualify you for the loan" in other words, won't give you any money!
That is how it supposed to work, but with the recent market melt down how can anyone be sure? It seems that the banks forgot the basic rules to make sure anyone asking for money can actually pay their loan back and home values historically do not increase at very high rates. After all people have to be able to pay for all the things they buy and the boss tends to give only 3%-5% raises.
Banks and lenders were so quick to give money to anyone because everyone assumed the property values will continue to rise and the banks will get their money back. The house buyers thought “free money” or “cheap money” because of low interest rate and easy credit….
Rule of Thumb
There is no “free money” or “cheap money”; anyone giving you money wants it back and will likely expects a return too
Do yourself a favor and make sure you can actuly afford the monthly payments as if you were going to hold on to your house for a long time.
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