Reaching an underwater position is the worst nightmare of any Utahan mortgage borrower. Although the Beehive State has seen homebuyers successfully built equity on their properties over the years, Utah was once the proud leader for underwater home loans nationwide.
As a borrower, you don’t t want to be in this position. You have to be careful when it comes to choosing the home loan you’d get. Beyond the low mortgage rates in Salt Lake City, there are many things to factor in to ensure you wouldn’t be in that deep financial hole.
It starts by making smart decisions. Here are some of them:
Free Up about 28% of Your Monthly Budget
After your credit score, your debt-to-income (DTI) ratio tells you how capable you are in repaying your mortgage. Forget about the fact that lenders would most likely approve your application with a low DTI for now; focus instead of the serious implications if your income isn’t ready for this major fiscal responsibility.
Your mortgage repayment should not exceed 28% of your gross monthly wage. This is a safe number, which lets you have enough money to pay for your other living expenses.
Put Down 20% of the Sale Price
A large down payment, specifically one-fifth of the entire purchase price of the property, is instrumental to avoid negative equity. Feeling overly confident that house prices are too high to abruptly head south is a cardinal sin.
Even if you find an attractive home loan with a 90% LTV, a 10% down payment may not be safe enough if you really want to play it safe.
Pay No Less Than 100% of What’s Due
The biggest culprit why underwater mortgages happen is an option arm loan program. This flexible type of mortgage allows you to pay just the minimum amount of your repayment. This negative amortization option truly sets the stage for disaster. Once you get into this habit, next thing you know you’re already deep underwater.
An underwater mortgage is always a possibility even in the markets that it’s least probable. Do your due diligence because the devil is in the details.