How does the mortgage crisis affect me?

Does the current mortgage crisis affect you? It may. Many people are in homes that are worth less than they owe. If you are in this situation, it would be impossible to refinance the home if needed. Additionally, living in a home that is worth less than you are currently paying, it means that you have no equity in the home. If you needed some quick money, you would not be able to tap into a home equity line of credit, and your home, no matter how nice, is not technically considered an asset.

Another way that the current state of the mortgage industry affects all of us is through home values. It is a circular problem. As more people cannot afford their mortgages, they are forced to enter into short sales with their lenders. A short sale is a sale where the new buyer pays less than the amount owed on the loan. When the home is involved in a short sale, the buyer gets the home for less than market value. The home's selling price is recorded, lowering the property values in the neighborhood.

How can you prevent getting embroiled in the mortgage crisis? While most agree that this is a cycle, and home prices will rebound, what no one knows is how long that rebound will take and if the housing market will reach its previous high levels. For those that bought "at the top" of the market, it may be quite a while before they have any appreciable equity in their home. If you are currently a homeowner, or are considering buying a home, there are several ways that you can reduce your risk of financial hardship with your mortgage. Maintain a solid income, living beneath your means. Accumulate other assets, in addition to your home, and if you know that you do not have any equity in your home it is doubly important to build up a financial safety cushion in a savings account.

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