3 Financial Risks of Home Ownership

Home ownership is generally thought of as a sound financial decision. When you buy a home, you are supposed to be making an investment in your future and your financial position. While in many cases, it is a good idea, there are some financial risks associated with home ownership. Here are a few risks that you will want to consider about home ownership before you go out and buy a house.

1. Risk of Default

The biggest risk associated with home ownership is the risk of default. Buying a home is a very large financial obligation. In most cases, it is the biggest amount of money that someone will ever borrow. Therefore, there is a lot riding on you making the payments every month. When you fail to make the payments, the bank will take back the house and your credit will be affected drastically. You may never be able to buy a house again. If you do, you will most likely have to agree to unattractive terms and high interest rates. 

Any number of things can happen over the course of 30 years that make it to where you cannot afford your monthly payment anymore. You could lose your job. You could incur huge medical bills. Your spouse that makes most of the money could lose their job or become disabled. There are many factors that could contribute and 30 years is a long time to look into your future. You never know what could come up.

2. Obsolescence

Another risk that you have to become aware of is your house becoming obsolete in the market today. The real estate market is always changing. As time goes by, styles change and people like different things in houses. If you live in your house for many years and do nothing to update it, you could run the risk of your home becoming obsolete. You might not be able to sell it unless you take a drastic reduction in the price. This can cost you thousands of dollars in equity and hurt you in the long run when you try to buy your next house. Owning a house comes with a lot of work and constant updating. Failing to make the appropriate updates can cost you big in the long run.

3. Uncovered Disasters

Another big financial risk comes with your homeowners policy. When you own a home, you typically get a standard homeowners insurance policy. This type of policy covers you against standard losses like fire, theft, and hail damage. However, there are certain things that it does not cover. If the house floods from the outside, your homeowners insurance would not cover it. If your policy does not cover hurricanes and your house is destroyed by one, you now have a mortgage without a house. This can be a devastating proposal to you financially. Make sure that any potential risks are covered by some sort of insurance. 


Master Mortgage

The master mortgage is a document used to show that there is a lien on a property when a mortgage is taken out on it. It was originally instituted by Fannie Mae and Freddie Mac in 2007 and was created in order to streamline the process and make it easier to record the lien on the property. This document is used only when dealing with primary mortgages on a property. This document is not necessary for secondary mortgages such as a home-equity loan or a home-equity line of credit. 

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