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Avoid a crisis by knowing the terms of your mortgage

In 2007, the Mortgage Crisis took the United States by storm. The crisis was a result of a collapsing economy. This crisis ended up impacting financial markets around the world.

The crisis itself was not only from the collapsing economy but also a result of too many people being allowed to borrow too much. Unfortunately, when they couldn't make payments or wanted to sell, they found out that homes had decreased in value instead of being worth more than they initially paid in many cases.

Could a mortgage crisis happen again?

It's always possible. In the past, banks offered access to money easily. Someone looking to purchase a home might have been able to get a mortgage worth far more than they could afford. Many people took on risky mortgages, even when they had bad credit or wouldn't qualify for a mortgage with stricter standards in place.

When the economy struggles, the housing market struggles as well. Without money to invest, there's less liquidity, making it harder for people to borrow. Banks now sell loans instead of keeping them in their books, which also means the quality of loans decreases. That could end up causing a crisis in the future if borrowing isn't kept in check.

Today, it's harder to qualify for a mortgage than it was in the past. You'll need to show around two years of income and your ability to repay any loan you take out. The Mortgage Crisis did make it harder for new home buyers to make a purchase, but in retrospect, it may never have occurred if these stricter requirements had been in place in 2007.

If you're preparing to buy a home, know the terms of your mortgage. Your attorney can give you more information on the contract. Go in prepared, so you don't ever end up caught off guard.

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