If you live in Utah, undoubtedly you have heard of the bankruptcy problem pinching the whole state. For several years now, Utah has held the devious honor of ranking among the states with the highest annual bankruptcy filing rate. There is likely more than one explanation for such a phenomenon. At the very least, there is no easy answer as to why exactly so many citizens of Utah struggle with financial issues. In fact, one might expect the opposite of Utah citizens, given the strong presence of The Church of Jesus Christ of Latter Day Saints and the powerful admonition the president of the church, Gordon B. Hinckley, stresses to its members. President Hinckley strongly advises against incurring any unnecessary debt in addition to living beyond ones means.
Clearly the State of Utah is full of citizens who understand the dangers and trappings set by debt, yet they are no better off then the rest of America. In fact, relative to the other states, Utah is in considerably worse condition. One of the problems can be explored by examining a Utah mortgage. When you are looking to buy house, many people will advise you to purchase as much house as you can afford. Perhaps this is good advice, as real estate prices traditionally trend upward, and the best homes command the highest appreciation. However, if this advice is taken out of context or misunderstood it can prove devastating.
Utah Mortgage Example
For example, lets assume Tom ODell received the same advice we just discussed. His neighbor counseled him to take advantage of the low mortgage rates and buy the best house he could afford. All in all, this was sound advice. If you can afford a nice big house than you probably deserve one. So Tom started looking around in upper middle class neighborhoods looking for his dream home. After a week he stumbled across a house that was perfect. It had a great backyard for his kids, his wife would have her own sewing room, and he would get the home office he had always longed for. Based on his income stream, Tom had decided he could afford a $300,000 house. Tom was devastated when he saw the asking price of the house was $3750,000.
When Tom told the real estate agent of his dilemma, how he loved the house but it was just out of his price range, the agent responded positively. The agent seemed confident the price could be negotiated down to $365,000, and that given Toms steady stream of income for the past 7 years he would easily qualify for a bigger Utah mortgage than he had anticipated. As it turns out, the real estate agent was right. The sales price of the home was talked down, the bank agreed to finance the mortgage, and Tom was able to move into his dream home.
Everything worked out just dandy for Tom, so whats the problem? Glad you asked! The problem is one that is so often overlooked. The amount of money you can afford to spend on a house, and the amount of money the bank is willing to loan to you are two entirely different figures. Just because the bank is willing to loan you $365,000 for that dream house of yours does not mean you can afford the monthly payments. What you can afford should be determined by your monthly cash flow, especially taking into consideration your income as well as your debt that must be serviced. Quite frequently a bank will be willing to loan you more than you can afford. The trap is easy to fall into, especially when you have visions of that perfect house circulating in the back of your mind.
Dont let a mortgage drive you into bankruptcy. Securing your next Utah mortgage can be a pleasant experience, and remain so for the life of the loan, so long as you remember that what you can afford and what the bank will loan you are not one and the same.