Is there such as a thing, Home mortgage equals good debt? Consider your life change if you had no other debt to pay monthly or otherwise other than your monthly mortgage payment. Of course the expenses of owning a home, gas or electric, trash and sewer, water and possibly HOA dues. Would a person have a lot less stress if this is all they had to worry about ? My parents were raised in a time it was cash as you go, if you couldn’t pay for it then you went without. With the progression of society financing or mortgages were made available, prior to programs such as the Housing Act of 1937 a person would pay cash for a home. During my generation financing for automobiles became much easier to get and credit cards in my high school and college days was accepted form of medium. In the world of business a home mortgage is often referred to as good debt, primarily because a home not only provides security but it is an investment that history suggests will appreciate (gain in value) and the interest paid on a home mortgage is a tax write off. Believe it or not interest on credit cards used to be a tax write off and served a purpose, this incentive encouraged a generation to apply for credit cards and produced millions of dollars of profit for financial institutions.
If a Home Mortgage equals good debt it stands to reason there is the opposite, bad debt. Credit Cards of any type with a balance on them are considered bad debt. Americans built a nation on credit in general, the 1980’s seemed anything dreamed was reality. With any credit the day comes and the bill has a to be paid, the sad part is credit cards that are at the maximum amount and you only pay the minimum and never charged another item on this card would take over 20 years to pay it off. This is bad but it doesn’t stop there, when you pay one credit on time even the minimum payment you will have offers to get another and then the process starts all over again. How are you feeling now? If you’re concerned and this shoe fits, you should be and you may be thinking as I did, cancel the accounts and cut them up. This would be the wrong thing to do again! In fact cancelling a credit card may hurt your FICO credit scores, it usually does. The key is to maintain 2 or 3 tradelines (credit cards) and do not let them report more than 10% to 20% of the maximum limit and always make the payments on time. Talk about a two edged sword, if you max them out credit scores are impacted to the negative, if you cancel the account credit scores are also impacted to the negative, but,,,,, keep them near a zero balance and no more than 10% of maximum FICO credit scores will go up.
Biblically speaking the man who owes money becomes a slave to his Lender and he cannot serve two masters. Never ever is there a time this is more true. A part of American culture is the American Dream of Homeownership. Other than the freedom of not owing any money on credit cards or any type of revolving credit, a man that has credit cards at their maximum will have more trouble qualifying for a mortgage to become a member of American Home Ownership. More times than I would like to mention one of my clients has either not been able to qualify at all for a home or had to pay off bad debt to keep their debt to income (DTI) ratio within FHA Guidelines or delay home ownership because their FICO credit score are adversely affected because they are carrying to much debt in revolving credit cards. Slave to the Lender (Credit Cards), here is another disturbing fact the average graduating college student leaves with over $36,000 in debt. What a way to begin in a career? Which master do you serve? Here is the hard facts. After graduation you obtain employment, need a car for transportation and get a car loan in addition to any credit card debt or school loan debt. The day a college graduate starts their $48,000 a year job (example only), they often have a $350.00 car payment, $300.00 school loan payment, and $200.00 minimum monthly credit card payment. To qualify for a conventional loan a person must have no more than 45% DTI, so using this an example. $48,000 annual job divided by 12 months is $4000.00. Total of debt for this graduate before mortgage payment is $850.00 ($350 + 300 + 200= 850) this equals 21% of their income. If 21% of their income is already gone to bad debt this leaves 24% income to qualify for a home mortgage equals good debt, doing the math $960.00 payment that will have to include principle, interest, taxes and any HOA fees. How many homes and in what area can a person find a home for $960.00 a month? My point here is managing bad debt is a must do and realizing the impact on your future will put you ahead of the game. College Graduates represent a huge market of first time homeowners but they also have student loans student debt but managing it and planning when children early as a Freshmen through Senior in High school is the recipe for success. Keep this though in mind, I borrowed it from a youth Pastor that is a part of Dave Ramsey ministries. “The caliber of my future is depending on my choices I make today”! There are some great sites to help fund college for high school students planning on college. Scholly.com lists all types of scholarships and grants to pay for college. I can tell you from personal experience and observation of 30 years in Leadership and oversight of over 400 employees if a person does not like or is in a job that does not fit their skill base, sooner or later they will fail in the job. Notice I said job, a job is something you go to, a career is something you have passion for. This leads me to another nugget. There is another website that will match skills and personality to a career that “fits” you. I cannot tell you how many people I know that spent thousands of dollars on an education and when they got there hated it. NONE of these people stayed with it, one of my most talented employees enjoyed her job but bowed to pressure from her parents to work in the field their money had paid her to go to school for. She hated it, she was not fulfilled and lost some feelings of self worth. Parents, don’t do this to your kids, direct them to this site: findyourcalling.com. This could save you thousands of dollars and a whole lot of heartache.
The Housing of Urban Development (HUD) have encouraged home ownership through FHA (Federal Housing Administration). FHA does not loan money, they only insure mortgages issued by FHA approved private lenders. A person can qualify for a FHA Loan with only 3.5% down payment and minimum FICO credit scores of 580 or higher. The Larry Stepp Team at Gustan Cho Associates can help you accomplish homeownership but if you manage your bad debt properly you will have a FICO score of 620 or greater and the mortgage application process becomes much less difficult, less stressful and the bonus is you will qualify for more home because your DTI will not become an issue. Remember a home mortgage equals good debt, The Larry Stepp Team at Gustan Cho Associates is available 7 days a week, holidays and weekends for your assistance.
Larry Stepp 407-922-4755 LarryS.HomesNetwork@gmail.com