Mortgage Calculator

Before accumulating unsustainable debt, it’s important to use a Mortgage Calculator like the one below to help you determine your monthly mortgage payment and the time it would take to pay off your debt.

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The total cost of home ownership is more than just mortgage payments. Additional monthly costs include homeowner's insurance, property taxes, Home Owners Association (HOA) dues or Condo fees, and maintainance costs. Use the options below to calcuate the full cost of homeownership. Enter your zipcode for more accurate estimates of property taxes and insurance.
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Tips

Save on interest if you are willing to make payments every two weeks.

Making smaller payments every two weeks instead of once a month saves you interest and pays down your loan faster. How? By making payments every two weeks you actually end up paying more per year (the equivalent of one extra monthly payment).

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Make extra payments of toward your loan and save more.

Making extra payments every month can reduce the total amount of interest paid and help you pay off your loan faster.

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Cities with the Most Overleveraged Mortgage Debtors

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Ask the Experts

As one of the biggest financial transactions of our lives, the purchase of a home requires careful assessment of our finances as well as the potential impact of a mortgage. For advice on both buying and owning a home, we asked a panel of experts to weigh in with their thoughts on the following key questions:

  • Is now a good time to buy a home?

  • What are the most common financial mistakes people make when buying a home, and which are most costly in the long-term?

  • If someone is currently overleveraged and has trouble affording their mortgage payments, what steps should they take?

  • Is there any way for an individual to tell if his or her local housing market is overpriced?

  • Are there certain housing markets or circumstances in which it is acceptable to be overleveraged in mortgage debt? If so, how much is too much?

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Del Wright

Associate Professor of Law at the University of Missouri-Kansas City
Del Wright

Is this a good time to buy a home?

All things being equal, no. However, the decision to buy a house should factor in far more important things, such as need, affordability, etc. As a result, even if it is not the best time, the financial and market factors should not be the driving factors in the decision. Most real estate markets around the country are seller's markets (i.e., more buyers than available properties), and demand for homes is high, meaning prices will tend to be higher. Also, mortgage rates have gone up over the past few months, and the general market expectation is that interest rates will continue to rise, driving up total housing costs. Lastly, the new tax bill makes it slightly less beneficial to buy a house, because of the loss or reduction in certain housing-related tax benefits.

What are the most common financial mistakes people make when buying a home and which are most costly in the long term?

The biggest mistake buyers make is getting the wrong type of mortgage. When lenders offer a mixture of points, rates and terms, many buyers don't understand the full implications of their choices. A wrong choice in mortgage can cost a buyer for 30 years.

If someone is currently overleveraged and has trouble affording their mortgage payments, what steps should they take?

That depends on whether the problem is temporary or long-term. If temporary, they may benefit from talking with their lender to see what options are available. Many lenders will work with buyers if they are aware of what is going on. If the problem is long-term, they should look to see if there are any programs, either through the lender or the government, to help. They should also look to see if they can sell the property, because, as noted above, it is a seller's market.

Is there any way for an individual to know if their local housing market is overpriced?

Many real estate websites, such as Zillow, provide historical data on real estate prices. One way to determine if a market is overpriced is to look at the trends in prices in an area, and compare those prices with the general market. Also, one good piece of data is the price per square foot of a property, to help make an "apples-to-apples" comparison.

Are there certain housing markets or circumstances where it is understandable to be overleveraged in mortgage debt? If so, how much is too much?

"Overleveraged" is a fairly broad term, however, there is evidence that borrowers with a debt-to-income ratio higher than 43 percent tend to run into trouble making their mortgage payments. In general, mortgage debt is the best type of debt, because it is the cheapest. To the extent a borrower uses home equity debt to replace higher interest debt (and does not then borrow more money at a higher interest rate), that could be a reason to be "overleveraged."

Robert Stoll

Certified Financial Planner and Founder of Honey Lake Advisors
Robert Stoll

Is this a good time to buy a home?

The question of whether now is a good time to buy a home or not is usually answered by each individual's circumstances. If we look at home prices, Fannie Mae recently reported that the CoreLogic home price index just exceeded the high that was reached in April 2006, just before the housing bubble burst. That doesn't necessarily mean that prices are high, but it's notable that prices have recovered much of their losses from the crisis. On the flip side, 30-year mortgage rates remain very low, historically speaking. According to Freddie Mac, 30-year mortgage rates are around 4.40%, which is up from the lows reached in late 2012 (around 3.30%), but still lower than the rates that prevailed before the financial crisis, when rates ranged from 5.00-7.00%. So statistically, the housing market looks like a mixed bag right now, but there are still strong fundamentals (higher incomes, low mortgage rates) that can support further home price gains.

What are the most common financial mistakes people make when buying a home and which are most costly in the long term?

  • Buyers buy a home without intending to live in it for more than a few years. When you buy a home, you have to pay closing costs anywhere from 3-5% of the cost of the home. Then, when you go to sell a house, you're normally on the hook for paying the realtor sales commissions, which can range from 5-6%. What this means is that if you buy a home, you need to be able to sell it at a price 8% or higher than you bought it for just to cover the fees of buying and selling the home. The best advice is to only buy if you intend on staying in the home for more than four or five years, so that you give your home a chance to increase in value.
  • Buying too expensive of a home. Conventional wisdom in personal finance says that you want to keep the amount of your combined mortgage payment, property taxes, and homeowners insurance to less than 28% of your gross, pre-tax income. Many lenders will lend you more money that pushes that ratio above 28%, but buyers need to keep in mind that if they pay too much for a home, they will have to sacrifice elsewhere. A lot of people who "reach" for a bit more expensive home find out they don't have money to take vacations or eat out as much, or they don't have any money left over to save for college or retirement.

Is there any way for an individual to know if their local housing market is overpriced?

Each market is different and it can be hard to tell whether a market is overpriced or not. Probably the best indicator is whether a typical middle-class family can buy an average-priced home in the market. In some markets, like San Francisco, it is very hard for a middle-income family to purchase a home. A buyer can also get a sense for whether a local market is getting frothy depending on how quickly newly-listed homes are selling. If new home listings are getting sold within a couple days of hitting the market, that's a good sign that demand is higher than supply. Also, if homes in the area are selling for higher than the listing price, that can be another sign that the market is hot. A hot market can last for a number of years if there is a shortage of housing in the area. But buyers should be aware of these signs of froth before buying a home in that area.

Are there certain housing markets or circumstances where it is understandable to be overleveraged in mortgage debt? If so, how much is too much?

Generally, I would say it's never a good idea to overleverage yourself on a home purchase. As we saw in the housing crisis just ten years ago, people can get "trapped" in their homes if the value of their home declines below the amount they owe on the home. Your options for getting out of that situation are quite limited without defaulting on the loan. Overleveraging on a home purchase can have lasting, permanent consequences if the buyer gets it wrong, so it's best to keep the total housing cost to a reasonable level of your income and to have an equity cushion in the home.

Mark H. Goldman

Residential Loan Officer at C2 Financial Corporation & Lecturer in the Finance Department at San Diego State University
Mark H. Goldman

Is this a good time to buy a home?

It depends on how long someone plans to live in the home. As a rule of thumb, if someone plans to stay in their home more than five years and their anticipated income is stable, this is a good time to buy. Interest rates are heading up. In most markets, home prices are outpacing inflation. The longer people wait, the more expensive a home will likely become. In addition to the probable appreciation, homeowners enjoy a place to live with very predictable costs. Also, a landlord is no longer a major influence on housing decisions from rental increases or the term of occupancy.

I suggest planned ownership for a few years to recover the acquisition and disposition costs. Speak to people who have and have not owned their homes. I find many people get priced out of their neighborhoods over time as home prices increase beyond their means. Many people regret ever selling a property, since equity usually increases over time. Many people buy a home and live in it for a few years. They move out, rent it and buy another home. It can be a great way to accumulate wealth.

What are the most common financial mistakes people make when buying a home and which are most costly in the long term?

I find most people should use a competent real estate agent to get informed advice about the price to offer. The financing is a subtle issue. Buyers should evaluate the comparison of loan origination points to the interest rate. Over a long period, it may be beneficial to pay some points to buy down the rate. A competent loan officer can help advise on this issue.

Also, buyers might wish to consider adjustable rate loans if they are fairly sure the will be selling or refinancing in the next 5-10 years. If a buyer expects to refinance in 6 or 7 years, then perhaps a 7-year fixed rate loan would be appropriate. But, remember, we cannot forecast interest rates into the future. So, rates may be higher.

In addition to financing, family issues matter. Young couples should consider space needs if they are starting a family. Of course, schools and proximity to employment, amenities, transportation and shopping are also important. Lifestyle is another important consideration. Do people want an urban or rural environment? “Walk Scores” are increasingly more important to younger and older households.

If someone is currently overleveraged and has trouble affording their mortgage payments, what steps should they take?

Financial difficulty may be temporary or long-term. It is imperative to make an objective assessment of the root cause of the difficulty. Act quickly before the financial burden is compounded. If a sale of the home is indicated, do it before credit is impaired with additional late payments or even foreclosure. In my experience, people who are confronted with financial peril become paralyzed to act. The longer people wait, the fewer options they will have.

I have also seen distressed homeowners use loans from family or friends to fend off immediate financial distress. It may be better to get out from under a home someone cannot afford and use those resources for a new housing solution. For example, borrowing from family for a temporary solution that will not solve the problem may only postpone the inevitable loss of the home. In that case, the family resources may be exhausted and/or unavailable to help with a move. So, make a very realistic evaluation of the financial difficulty and try to form a prudent long-term solution.

Basically, if a home is too expensive to keep, you may need to get a less expensive place to live.

Is there any way for an individual to know if their local housing market is overpriced?

Some indicators of overpriced homes are if marketing times for listings are getting longer. Also, are homes selling above or below list prices? Use several samples to avoid list prices that may have been unrealistic to start with for a particular property. “The signs are everywhere.” If a neighborhood has a lot of “For Sale” signs in the lawns, the market may be slowing down or the market may be losing jobs. It is a healthy indicator if properties are listed and sold in a fairly short time.

Are there certain housing markets or circumstances where it is understandable to be overleveraged in mortgage debt? If so, how much is too much?

If “overleveraged” means someone borrowed more than they can afford to repay, they will likely get into trouble. Time heals many wounds in real estate. If you can hold on long enough, it is probable values will eventually be restored (depending on the reasons for the market decline). If a family purchased a home with a big loan and small down payment without the capacity to support the home, they will likely experience difficulty. This often occurs in markets where there is over optimism for price appreciation. Even though a lender may be willing to make a big loan for the purchase of a home, the most important issue is how much can the buyer afford for their home payment. The month to month value of a home is less important for a family that can afford to live in their home and does not need to sell.

Many homebuyers only consider the home as an investment. I suggest to consider the cost of shelter as a component of their price decision. Shelter costs money whether we rent or own. Consider the utility of the shelter component of owning a home as part of the evaluation of what price and financing to select. It may sound trite, but it is good to live within ones means.

Sheridan Titman

Professor in the Department of Finance and Walter W. McAllister Centennial Chair in Financial Services in the McCombs School of Business at The University of Texas at Austin
Sheridan Titman

Is this a good time to buy a home?

There has been a lot of speculation about how the new tax bill is going to affect real estate markets. Real estate agents lobbied heavily against the bill, so one might assume that the bill is bad for real estate. My initial impression is that that the tax bill will lead to fewer real estate transaction, which is clearly bad for real estate agents. It may also have a negative effect on the average home price across the U.S. However, there are likely to be winners and losers -- when it comes to housing, the tax bill will hurt some and help others.

The most important change for individuals is that deductions for mortgage interest payments, property taxes and state income taxes have been substantially cut and the standard deduction has been doubled. With this change, most individuals will be taking the standard deduction, which means that taxes will not directly influence most of their housing choices. The net effect is that there will be less incentive to own rather than rent, and for those who do own, there is less incentive to buy a more expensive home.

The tax bill will have a clear negative effect on houses in high-tax states like California and New York. It will make higher-priced homes less attractive, and indeed, will make California and New York a more expensive place to live.

Will the new tax bill have a positive effect on housing prices in other states? There is not a direct positive effect, but there can be an indirect effect that will depend on the extent to which individuals move from the high-tax to the low-tax states. My guess is that the tax act might speed up the migration of New Yorkers to Florida, as well as the migration of Californians to Austin, my home town.

On net, will this increase or decrease the value of Austin property? To some extent, it depends on how Austin manages the growth. Growth can potentially be a virtuous circle -- more people can lead to better amenities and a more vibrant job market, attracting more people, leading to still better amenities, etc. Growth can also lead to traffic and other ill effects of congestion, making the location a less attractive place to live.

The new tax bill will also influence the decision of individuals to own versus rent their homes. The tax bill directly increases the cost of owning, and if anything, the bill can lower the cost of renting by providing tax goodies to the private real estate partnerships that own rental properties. The hope is that this will increase the incentives for real estate developers to build new apartments, increasing supply and thus lowering rents.

Emil E. Malizia

Professor in the Department of City & Regional Planning and Director of the Institute for Economic Development at The University of North Carolina at Chapel Hill
Emil E. Malizia

Is this a good time to buy a home?

It depends entirely on where you want to buy.

What are the most common financial mistakes people make when buying a home and which are most costly in the long term?

Getting sucked into taking teaser rates on variable-rate mortgages.

If someone is currently overleveraged and has trouble affording their mortgage payments, what steps should they take?

If their mortgage is with a bank, they should feel remorseful that they didn't do business with a credit union.

Is there any way for an individual to know if their local housing market is overpriced?

  • One very rough approach is to estimate the current cost of building the structure and deducting that from the asking price (since the existing house should be worth less than a new one due to depreciation, this estimates the minimum land value);
  • The difference is the land value -- is the land worth this amount?

Norman Miller

Professor of Real Estate and Hahn Chair of Real Estate Finance at the University of San Diego School of Business
Norman Miller

Is this a good time to buy a home?

We are in equilibrium and nowhere near a bubble, so yes, it is as good as most times. A few markets might be frothy, but the vast majority are affordable and reasonable. See a working paper on this under research.

What are the most common financial mistakes people make when buying a home and which are most costly in the long term?

Not researching the true expense of operating a home, property taxes especially, maintenance and repair costs, HOA fees, the HOA budget and likely increases, the HOA management (some are formerly KGB or act like it), and teaser rate mortgages (less common today). Assuming prices always go up.

If someone is currently overleveraged and has trouble affording their mortgage payments, what steps should they take?

Talk to your lender as soon as possible and tell them. Most will work with you if this is a temporary problem, otherwise put the home up for sale and get out as soon as possible. Don't default, as this will mess up your credit for at least three years or more.

Is there any way for an individual to know if their local housing market is overpriced?

See our paper on affordability, but most markets are not overpriced right now. Some that may be vulnerable are the tech-dominated markets like San Francisco. If the tech stocks pop, so will some of the housing submarkets near these companies.

Are there certain housing markets or circumstances where it is understandable to be overleveraged in mortgage debt? If so, how much is too much?

No, not unless you have certainty that prices will go up more than expected, and no one has that crystal ball. Don't treat a home as an investment. Treat it first as a consumer item that provides a service you want and secondly, try and buy wisely so that you don't lose money. Right now, with the new tax law changes, those with fewer than $24,000 in deductions, including mortgage interest and property taxes (limited in some cases by SALT limits) may find renting is just as cheap as buying, especially in the lower-third tier in California markets, where SALT limits really constrain deductions.

Ben Wacek

Certified Financial Planner and Founder of Wacek Financial Planning, LLC
Ben Wacek

Is this a good time to buy a home?

The decision to buy a house should almost always be determined by the financial readiness of the buyer rather than by the strength of the housing market, interest rates, or home values. Rather than focusing on these factors that can't be controlled or accurately predicted, I recommend that buyers focus on the things they can control, such as determining the monthly payment they can afford, putting 20 percent down on a house, and the neighborhood they want to live in. So yes, if the buyer has their finances in order and has the desire to purchase a home, it's a great time to buy.

Kenneth Roskelley

Associate Professor of Finance at Mississippi State University
Kenneth Roskelley

Is this a good time to buy a home?

The time to buy a home depends on the person and the market. Often, the worst time to buy is when everyone is telling you now is a good time to buy. More importantly, each person should consider the next five years. If you think there is a good chance that you’ll move before five years is up, chances are renting is a better option (once you consider the fees associated with buying a house and the risk of housing prices).

What are the most common financial mistakes people make when buying a home and which are most costly in the long term?

In addition, buying a house is often not a good idea if you don’t already have money in a retirement account. Putting so much money into one asset, a house, leaves you poorly diversified. Taking out a big mortgage relative to your overall retirement account, particularly if you think moving is likely, is a common financial mistake.

If someone is currently overleveraged and has trouble affording their mortgage payments, what steps should they take?

If the homeowner is overleveraged and having difficulty making mortgage payments, there is seldom a unique (or palatable) solution. The owner might take on a renter, refinance the mortgage to extend the length of the loan, or even sell the house. Depending on housing prices in their area, they may need to discuss the possibility of a short sale with their bank. However, there are a lot of legal and financial considerations, and there are downsides to each of these options.

Is there any way for an individual to know if their local housing market is overpriced?

Unfortunately, it is seldom clear when a house is overpriced, or even what that means. One often-used measure of overpricing is to check the median rent relative to the median house price in your area, but there are good reasons why these numbers vary from city to city. Strong economic growth coupled with development restrictions, such as in San Francisco, will often skew prices and rental rates. People talk of the housing bubble prior to the financial crisis since housing prices in San Francisco dropped over 40 percent between the start of 2007 and mid-2009.

However, housing prices in San Francisco are around 94 percent of their early 2007 level, even after you adjust for inflation. So, was there really a bubble in 2007, or simply a housing crash that reflected a weak economy? Or are we yet again at the top of another bubble? It is difficult to say, but similar to investing in the stock market, if one holds the asset over a 30-year horizon, the nominal return on the asset is highly likely to be positive. Over periods of one to five years, however, housing prices can drop substantially, as we saw in 2007. Once again, the expected tenure in the house is an important factor in the decision to purchase a house

Are there certain housing markets or circumstances where it is understandable to be overleveraged in mortgage debt? If so, how much is too much?

Personally, I don’t think there is a good reason to be overleveraged. But then again, I am on the conservative side. Younger people often have more tolerance for risk given their longer investment horizon. For instance, if my investment goes sour one year before retirement and I lose the house, I might be in for a meagre retirement. This is very different if my bet goes sour at age 25 and I’m forced to declare bankruptcy and start over; I have several years to build up my investment. Overleveraging and taking big bets in the hopes of rising house prices is a risky. While it can provide some very handsome returns if things go well, it can also end ruinously.

Edward Nelling

Professor of Finance in the LeBow College of Business at Drexel University
Edward Nelling
What are the most common financial mistakes people make when buying a home and which are most costly in the long-term?

The biggest mistake is over-reaching and buying a bigger house than they need or can afford. Another mistake is using an interest-only loan (which have declined in popularity since the financial crisis), or being tempted to go for a mortgage that has a low introductory (teaser) rate, only to see the rate and associated payment rise later. These mistakes are also the most costly.

If someone is currently over-leveraged and has trouble affording their mortgage payments what steps should they take?

They should seek to refinance their mortgage, if lower rates are available. Depending on their lender, they may be able to negotiate alternative payments. In extreme cases, they should consider selling their house.

Is there any way for an individual to tell if their local housing market is overpriced?

This is not easy for individuals to determine. Two possible measures of a “hot” market are the average number of days a property is on the market, and the percentage of the listing price that houses sell for -- in hotter markets, properties sell quickly, and for close to (or sometimes, even above) their asking price. In addition, note that most real estate agents have incentives to execute deals, so they are unlikely to provide unbiased advice.

Are there certain housing markets or circumstances where it is OK to be over-leveraged in mortgage debt? If so, how much is too much?

In my opinion, too much leverage is never good. You never hear stories about people going bankrupt because they borrowed too little.

Tom G. Geurts

Associate Professor of Real Estate and Finance at The George Washington University and Honorary Professor of Real Estate at the Technical University of Berlin
Tom G. Geurts
Is this a good time to buy a home?

Whether it is a good time to buy a house depends on many personal factors, for example when one expects to move in the near future one should probably not buy a house; however, assuming that it makes sense to buy a house for personal reasons, then yes it is a fairly good time to buy since interest rates are still low. Now it is likely that as interest rates increase (which is fairly certain), house prices will stagnate or perhaps even decline (higher interest rates will lead to lower demand for buying a house since the costs are going up). However, if one wants to stay in the house for a long time and doesn't care about the stagnation in value and can afford it, then the cost of owning the house is low. This comes with two requirements: get a fixed rate mortgage (not a variable one, although they are even cheaper at the moment) and you should be able to continue to pay the debt service in the future (i.e., don't lose your job), because if you cannot make the debt service payment and you need to sell your house, you might have to sell it at a loss.

What are the most common financial mistakes people make when buying a home and which are most costly in the long-term?

Buying "too much house" and thus taking on too much debt that they cannot afford; not having enough savings (typically 6 months of monthly costs are recommended in savings) to have as a buffer in case something "bad" happens, such as losing a job.

If someone is currently over-leveraged and has trouble affording their mortgage payments what steps should they take?

Talk to the bank. Banks have no incentive to foreclose: it is messy and they prefer to work with the borrower to find a solution. The mortgage can be restructured with lower payments. Don't wait until it is too late, but be pro-active.

Is there any way for an individual to tell if their local housing market is overpriced?

No, probably not.

Are there certain housing markets or circumstances where it is OK to be over-leveraged in mortgage debt? If so, how much is too much?

In my opinion, no. The risk is not worth it.

Richard J. Sobelsohn

Adjunct Professor of Law at Fordham University
Richard J. Sobelsohn
Is this a good time to buy a home?

This is always a crystal ball question. It is not so much is it a good time to buy a home now, but how will the investment be viewed in the near future or, more importantly, when the purchaser wants to/needs to sell. We have not seen the bubble burst yet and may not for a while. Investing in real estate is different from investing in any other vehicle, if it is for residency. We have to pay something for a place to live. The best question to answer is how much more will it cost to own the home than what was paid for a rental. If that answer is not a material amount, then it does not make sense not to purchase a home, especially if the goal is to hold onto the property for a while where realized appreciation is typically a result.

What are the most common financial mistakes people make when buying a home and which are most costly in the long-term?

When people purchase a home, "kicking the tires" in a home inspection is crucial. If there will be a need for a capital expenditure (i.e., a new roof, boiler, leaking foundation, etc.), these can change the expectations of the purchaser in what they budgeted. Similarly, during the purchaser's due diligence, an examination of the municipality’s increases in real estate taxes should be considered. Again, this is to avoid any surprises. Many home buyers have a choice of a fixed rate mortgage or a variable rate mortgage. Although we have had incredibly low rates for the recent past, rates could increase materially and that too will affect the "budget," which could result in the home owner having difficulty meeting the mortgage interest/principal payments.

The last thing a purchaser should know (and here is where their attorney who wears both "the attorney-at-law and counselor-at-law hats) is what is the true purchase price of the property. For example, if the property is selling for $500,000 and a bank is willing to lend, on a loan-to-value ratio of 80%, $400,000, that does not mean that the purchaser is receiving the entire $400,000. Banks have fees that come out of the loan proceeds such as appraisals, attorneys' fees, etc. Furthermore, the attorney should be informing the client at the outset of the transaction that there are closing costs that will need to be paid above and beyond the property sale price -- title insurance (unless in a jurisdiction like Florida where the seller pays for this), mortgage recording taxes (where applicable), insurance premiums (they may be used to a low renter's insurance premium and not a homeowners premium), attorneys' fees, and other costs.

If someone is currently over-leveraged and has trouble affording their mortgage payments what steps should they take?

During this time, when real property values are still on the rise, the borrower "under water" should consider selling the property as they will probably not lose as much as if the value starts to decrease. I usually recommend looking for a replacement lender for a possible refinance. Keep in mind, trouble affording the debt service does not mean missing mortgage payments. If is more difficult to refinance if a borrower has a history of defaults than if they do not. Downsizing is also a solution. It could be that the property was a stretch to begin with and the borrower had hoped for increases in salary, etc., but it never was realized. As I tell my kids, in budgeting it is not how much one makes but rather how much one spends.

Is there any way for an individual to tell if their local housing market is overpriced?

That is a difficult question to answer as we get back to the crystal ball answer. It may be overpriced in one person's mind, but if the market is paying the overpriced amounts, that is the market. Today this is easier than it was in the past to find out what selling prices are. There is a ton of information online. Companies like Street Easy, Property Shark and national brokerage websites afford the prospective purchaser what homes are selling for.

Are there certain housing markets or circumstances where it is OK to be over-leveraged in mortgage debt? If so, how much is too much?

This is an answer I would not go near touching. Being over-leveraged is a gamble in any circumstance. It means that the borrower is borrowing more than they can afford. That does not mean it does not happen -- it does all the time. With an expectation of having personal economic changes for the better happening, people buy today "more than they can afford today," but hope they will be able to afford tomorrow. My practice has always been to discuss with a client prior to the acquisition, best scenario and worst scenario. If they will find themselves or even plan for an over-leveraged situation, what is the escape plan. Keep in mind that real estate developers in a rising real estate market doe this all the time. Being over-leveraged today with increasing values quite often is not over-leveraged tomorrow. But that is a business decision that real estate investors (residential home buyers and commercial developers) make, not their attorneys.

Doug Kelbaugh

Professor of Architecture & Urban Planning and Former Dean in the Taubman College of Architecture & Urban Planning at University of Michigan
Doug Kelbaugh
Is this a good time to buy a home?

Generally, I think most Americans have too high expectations about housing. New houses have been getting bigger again: according to the U.S. Census' most recent study of new housing, which concluded with the year 2015, homes on average continue to grow in square footage, though families simultaneously continue to get smaller. Nationally, the average square footage for a single-family home was about 2500 in 2015, compared with about 1600 in 1980. European homes are typically about half that size. We've become a bit spoiled.

The move back to the city from the suburbs by empty-nesters and Millennials is leading to smaller units. But prices are through-the-roof, because urban land and building construction are more expensive and the supply of housing in desirable cities lags demand.

My advice would be to downsize and live in the city, where a household get by with one car, maybe no cars. Walking, biking and transit saves enough money to make a more expensive downtown unit more affordable.

What are the most common financial mistakes people make when buying a home and which are most costly in the long-term?

People so often fail to take the total cost of buying, maintaining, fueling, insuring and parking a car when they move further out to find cheaper housing.

Roger Staiger

Managing Director at Stage Capital, LLC
Roger Staiger
Is this a good time to buy a home?

It is never a "bad" time to purchase a home. Interest rates are at historic lows, though prices are also approaching historic highs. Given that a developer is President of the United States, it is unlikely that interest deductions will be reduced.

What are the most common financial mistakes people make when buying a home and which are most costly in the long-term?

Lack of understanding of the home's expense items and long-term costs. Purchasing at the bottom of a hill when that is where all the water accumulates. Not understanding the amortization of the home and/or pursuing an interest only loan that provides no amortization. Using the Home Equity line for non-emergencies and/or capital improvements that add value to the home, e.g., purchasing a new car. Over buying a home, i.e., buying the maximum home one can finance rather than one can afford.

If someone is currently over-leveraged and has trouble affording their mortgage payments what steps should they take?

Get their head out of the hole -- hiding does not help. Run at the problem. First thing: get a second or third job. Cheesecake Factory waiters can make $1500/month cash. Reduce variable expenses, i.e., no Starbucks. Start counting pennies, nickels and dimes. Start talking, being silent will not help. Yes, it is embarrassing but it is your home. Start asking for help/advice. Beware of financial counselors that charge a fee. Do these "counselors" have a degree in finance? Do they understand real estate? Protect your powder, i.e., do not panic and start hiring people without knowledge of their ability to help.

Is there any way for an individual to tell if their local housing market is overpriced?

YES! Do rents support the mortgage payment? Look at Georgetown townhomes. They are $1.5m and rent for $3,500 - $4,000/mo. These rents only support values of $700,000 - $800,000. The rest is an emotional purchase. From a cash flow perspective, these are grossly overpriced. In personal wealth planning, make certain assets that can support themselves.

Are there certain housing markets or circumstances where it is OK to be over-leveraged in mortgage debt? If so, how much is too much?

Yes -- if you have a special needs child that requires housing with large hallways and special rooms. The needs of the child come first. Also, if you are brain surgeon with children in residency. Starting salary exceeds $500,000/year base and as a resident are earning $40,000/year. Possibly if starting out in one's career and knowing and/or feeling confident that salary rises will come, e.g., first year attorney at a law firm with annual step ups that was educated at Yale (high probability of success).

Vaneesha Boney Dutra

Associate Professor of Finance in the Daniels College of Business at University Of Denver
Vaneesha Boney Dutra
Is this a good time to buy a home?

Real estate markets are very regional and location specific, so it can be difficult to state in general terms whether it’s a good time to buy a home. When asked this question, people generally want to know whether housing prices are too high or over inflated. Again, this can be a difficult question to answer as some housing markets are characterized by very short supply and expanding job opportunities which may very well justify year over year housing price increases.

It is important to remember that interest rates are still low and only expected to increase, thus if you are in the market to purchase, waiting may not be in your best interest. Waiting for housing prices to decline may cost you more in the end as any potential gain through lower prices may be offset by a higher interest rate.

What are the most common financial mistakes people make when buying a home and which are most costly in the long-term?

One of the more costly mistakes made by homeowners is purchasing more home than they can really afford. Homebuyers, especially first time buyers, often focus on whether they can make the mortgage payment, forgetting that homeownership comes with significant additional expenses such as higher utility bills, repair and maintenance costs. Another costly mistake is not getting a home inspected as a condition of the sale. Some homebuyers try to avoid this extra expense (generally $300-600) during the home buying process, but this additional cost may pay for itself many times over in the event that a defect is found. By making the home inspection a condition of the sale, the home buyer can often get the seller to take care of the repairs before closing.

Finally, homebuyers often make the mistake of getting emotionally attached to a home and over bidding for a property. This can especially be the case when inventory is low. It is important to remain objective and stay mindful of your budget so that you don’t write an offer with your emotions instead of your head.

If someone is currently over-leveraged and has trouble affording their mortgage payments what steps should they take?

The first step is to talk with your mortgage company. After the financial crisis, many banks and mortgage companies have programs that help homebuyers restructure their mortgage if they run into trouble such as a loss of employment or reduction in salary. Communication is the key here. It is very important that the homebuyer try to make contact with their bank as soon as they know they are in financial distress so that there is more time to work out a potential solution.

Is there any way for an individual to tell if their local housing market is overpriced?

It can be very difficult to determine whether your local housing market is overpriced. Accordingly, a significant concern of homebuyers is whether they are buying at the peak of a market. No one wants to purchase when prices are at their highest, thus you find a segment of homebuyers that try and “time the market.” Timing the market simply means attempting to figure out when prices will change within a market cycle; buying before you believe prices will rise and selling before prices start to fall. The problem with this is that market cycles are notoriously hard to predict, thus in trying to time the market, homeowners will often delay a purchase and only end up paying more in the long run. This may particularly be the case in this current market where interest rates are rising, which will increase the cost of obtaining a mortgage for borrowers.

The Federal Reserve has already increased interest rates twice in the last 5 months with additional rate hikes expected this year. My overall advice is if you are purchasing a home in your local market and plan to be in it for a significant period of time, then avoid trying to time the market and purchase the home that meets both your budgetary and long term functional needs. This will be a better strategy over trying to determine whether there is overpricing in the market.

Are there certain housing markets or circumstances where it is OK to be over-leveraged in mortgage debt? If so, how much is too much?

Over leveraging, by definition, is generally not a good financial situation to put yourself in. If you are already cashed strapped and are attempting to purchase a home you may consider renting, until your financial situation has improved, given home ownership often comes with many hidden and unexpected expenses, which can further deplete cash reserves.

Community Discussion

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Leverage the expertise of the WalletHub community to make better decisions.

@samuelj_41
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My wife and I are both retired, with an income of $50,000/year. Our credit scores are 750 and 796. We would like to borrow $60,000 on our home. The approximate value of our home is $320,000 and we owe $185,000. Our mortgage rate is 3.5%. We are wondering if we should get a credit-line loan or refinance our 1st mortgage. There are no other loans on our home.

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Sandra Powell @sandrap_112
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How high does your credit have to be to buy a home?

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@WalletHub
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There is no pre-set minimum credit score to buy a house -- that is determined by each lender, and different lenders set different criteria. That being said, a score that is at least good (above 660) will almost certainly qualify you. Anything below that brings a bit of uncertainty into the equation. You still might qualify for a mortgage, but the interest rates will certainly be higher, and lenders will rely on other criteria to make their decision, such as a reliable source of income and assets. Whenever you are considering applying for something major, such as a mortgage, it is a good idea to check your credit report and score several months in advance. This way, you have time to improve your credit standing, if needed. Some guidelines that will help you improve your score include bringing any past due debts current, making all payments on time, every time, and reducing your credit utilization ratio. Hope this helps!

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@virginias_70
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i was overcharged on a income green card check for morgage payments called yellow line how was the original amount due stated to be less and if so how much to cover the damages?

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@WalletHub
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When you write a check that taps into a credit card account’s credit line, it’s actually considered a cash advance – this is the reason you were charged a costly fee and a high interest rate. The exact fee and rate differs from card to card, so make sure you check your credit card’s terms and conditions to see how much you’re liable for. Hope this helps!

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Sabine Woodson @sabinew_1
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I am cleaning up my credit score and have about 600 now can I get 100% mortgage?

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JULIA DOVEIKIS @zzzzzzzzzzzzz
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How much is a good rate?

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Linda Lear @lindal_45
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Do you accept mobile homes as down payments?

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Sandress Roberts @sandressr
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Not looking for a home that cost that I'm Looking for rent to own.

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Roneil Elbrader @roneile
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I missed four months of my mortgage due to decrease in income so my bank was either going to foreclose or I could do a loan modification. I made my three good faith payments. They forced me to start an escrow account to cover my insurance and taxes but did not state that my loan which was 17 years into a 30 year fixed loan at 7.125% would restart again at 30 years and they did not lower the interest rate to the current rate. They told me that the months I was behind would be tacked onto the end of the original loan. I had always paid my taxes and insurance on my own. Then they told me over the phone that the escrow the first year they paid it would be spread over 4 years but now they have increased my escrow to catch up by the Escrow Department with the bank. I kept my part of the bargain and agreed to what they told me would happen but they have went back on their word. My payment was $402.00 a month and now it is $505.00 and my loan was restarted again to a new 30 year term. Is there anything I can do to make them change the terms that they told me during the remodification process? It was supposed to make it more affordable but it went up $103.00 a month. I've tried talking to the bank and they won't budge, is there an agency I can file a complaint with regarding truth in lending issue? Thanks for any input into my deliemma. I will be 76 when my new mortgage is paid off with them under their new terms I was not told about.

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