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Strategies for First Time Home Buyers To Avoid Future Foreclosure or Bankruptcy

Posted on in Bankruptcy Attorney Illinois

Purchasing your first home can be exhilarating, a bit frightening and, at times, overwhelming. Buying a home is often rated as the most important financial decision of your adult life, and being fiscally responsible should be your number one priority.

Often, first time home buyers will fall in love with a house that may put them at risk for financial troubles, including foreclosure down the proverbial road. To avoid the pitfalls of trying to get out from under upside down mortgages, or when the collateral that secured the loan is now lower in value than the balance owed to the lender, takes careful planning. By calculating your income, assets, liabilities and possible property taxes and insurance, you will avoid possible financial distress or even personal bankruptcy in the event of a life change or disability. Consider having a financial cushion on hand to cover any unexpected financial disturbances before signing on the dotted line.

Before beginning your search for the perfect home, the following strategies will provide you with a better estimation of where your finances can take you.

Strategy Number One

  • Put pen to paper and list all of your monthly expenses.
  • Tally all of your current assets, including savings and investments.
  • List your current rent payment, all utilities, insurance premiums, credit card debt and vehicle expenses.
  • Miscellaneous monthly expenses such as groceries, gas or transportation costs should also be noted and do not forget unexpected expenses, such as entertainment and clothing.
  • Apply the final sum against your gross monthly income to determine a realistic idea of how much house you can actually afford.

Strategy Number Two

  • If you are working with a real estate professional, request tax and insurance rates for the area you are interested in.
  • Also request a definition of how these rates are calculated.
  • Ensure there are not any unexpected fees such as homeowner's association fees or additional insurance premiums such as flood insurance.

Strategy Number Three

  • By referring to your asset and liability figures, apply the 20/28/36 rule to determine how much house you can realistically afford.
  • The 20 rule covers a 20 percent down payment, commonly the industry standard.
  • The 28 rule reflects your projected total house payment (including taxes and insurance), which should not exceed 28 percent of your total gross monthly income.
  • The 36 rule refers to the sum of all your expenses, which should not exceed 36 percent of your gross monthly income.

Strategy Number Four

  • Visit your lender and complete a brief pre-approval application.
  • Pay strict attention to your pre-approval loan rate and mortgage terms
  • By completing this strategy you will ensure a positive house hunting experience.

Strategy Number Five

  • Contact your real estate professional with pre-approval letter in hand and begin your search for the perfect but affordable home.

Even with diligent financial planning, no one is able to predict the future. According to a study by research firm RealtyTrac, homeowners in Florida, Maryland, and Illinois are still experiencing the highest rates of foreclosures throughout the U.S. In Illinois alone, one in every 645 homeowners are currently in foreclosure.

If you reside in Illinois and are in danger of foreclosure or dealing with an upside down mortgage, the Illinois foreclosure attorneys of Newland & Newland, LLP will personally assess your situation to determine the best course of action to keep your dream of homeownership alive. Since 1993, Newland & Newland, LLP have been assisting clients throughout Cook, Lake, McHenry, DuPage and Will counties with bankruptcy and foreclosure legal matters. Contact us to schedule your free phone consultation today.

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