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I couldn’t believe my eyes this weekend. I was watching CNN (no surprise), and as I was listening to the live coverage of O.J Simpson’s trial, I happened to glance down at the news crawl and read that “One in ten mortgages are either delinquent or in foreclosure.”

Now, I know that the economy is shot. We can’t open a newspaper or listen to a report without hearing about rising foreclosures, layoffs, bailout plans. I also realize that a large percentage of homeowners are distressed and they’re feeling the pinch of adjustable rate and interest only mortgage loans. But what I didn’t realize is the severity of the problem. In my mind, I thought the mortgage delinquency number was more in the ballpark of “one in 50.” Add this to the number of people who’ve already lost their homes to foreclosure, and we’ve got an ongoing crisis on our hand.

I feel bad for everyone in this position. But at the same time, I can’t help but wonder – didn’t they foresee this?

My Personal Mortgage Story

My husband and I bought our first place in 2006. This was during the time when interest-only mortgages were all the rage, and the majority of homeowners chose this mortgage option over a fixed rate. Who could blame them? Home prices had skyrocketed beyond reach, and it was practically impossible to afford a simple starter home. Interest only payments and adjustable rate home loans offered low initial payments. But like all good things, low payments eventually end, and mortgage payments increase.

We opted for a fixed rate. I researched different mortgage loans. Plus, I was freelancing for a mortgage and loan website. So, I fully understood all the risks. And although we could have gotten more house for our money with an interest only home loan, we chose predictability over payment shock.

Don’t “Splurge” on a Mortgage

Buying a home is one of the biggest financial decisions you’ll make. And while you may be able to splurge on a new outfit, vacation, or perhaps a new car – it’s never a good idea to splurge on a mortgage loan. This one decision can impact every aspect of your life. If you don’t earn enough money to afford the payment, you may rely on credit cards and get into excessive debt. You may have to alter your lifestyle; and if the situation doesn’t improve, it can put a strain on your marriage.

Mortgage lenders have recently tightened their belts and stopped offering risky home loans. Still, a few “iffy” home buyers can slip through the cracks, and it’s the responsibility of each buyer to consider different mortgage options and determine what they can reasonably handle.

Use Good Mortgage Judgment

Mortgage lenders and brokers base approvals on your income and debts. They don’t take into account other monthly payments such as insurances, gasoline, food, etc. Sure, they may approve you for $250,000 – but can you realistically afford that payment?

Before applying for a home loan, consult an online mortgage calculator. This simple calculator will calculate your payment based on a loan amount and interest rate. Remember: this estimated payment doesn’t include monthly taxes and insurances, which can be an additional $200 to $300. Next, calculate your other household expenses. What’s left over? Is it enough? If the mortgage payment exceeds your monthly income by 36%, it’s probably too expensive.

Ask Your Lenders Questions

Does the loan feature a fixed or adjustable rate? Do I have to pay a down payment or closing costs? Will I pay private mortgage insurance? Too often, new home buyers walk into a broker or lender’s office with absolutely no knowledge of how mortgage loans work. They accept bad advice from shady lenders and end up paying more for their loan. Do your research, and don’t depend on the broker or lender to suggest the best loan program.

Compare Mortgage Loan Rates

It’s funny…some people will drive to three or four different stores to get the best price on a pair of shoes, but when it comes to a home loan, they pick a random lender from the phone book and complete an application. Comparison shopping is essential, and it’s the only way to get the lowest rate on a home loan. One lender may review your credit and offer a 6% interest rate, whereas another offers a 7% interest rate. It may not seem like a big deal, but a one percent rate difference can increase/decrease payments, and limit your buying power.

Photo by: The Truth About