When homeownership turns into a financial nightmare

BY JAY BRIJPAUL

In 2022, a family bought their first home in a hot seller’s market. With low interest rates, they jumped in, paying $950,000 among multiple bidders to secure a condo townhome listed at $750,000. They put down $50,000 and took a fixed three-year mortgage.

Fast-forward to renewal: Their monthly payments more than doubled, and they faced a $750 maintenance fee plus utilities. Then, life threw another curveball: one homeowner fell ill, making it even harder to keep up financially.

Selling seemed like the only option, but the market had shifted. Similar homes were now selling for $800,000, but their mortgage balance was $940,000 across two loans. Factoring in closing costs, selling would leave them with a $200,000 shortfall. To make matters worse, they had two co-signers who would be on the hook if they defaulted.

This is the story of a hardworking family that saved to buy a home—only to find themselves drowning in debt. Let’s examine what went wrong and how others can avoid the same fate.

As a first-time buyer, your realtor plays a significant role in guiding you—but not all realtors are the same. That’s why it’s essential to do your homework.

“Being prepared is the best way to avoid costly mistakes!”

Ask family and friends for advice, but remember, their experiences may differ from yours. Get recommendations, then interview multiple realtors and take notes.

Before you start house hunting, fully understand the buying process. If you don’t, keep researching and meeting with realtors until you do. Being prepared is the best way to avoid costly mistakes!

When buying real estate, it’s wise to go against the trend. If there’s a bidding war, step back. Emotions run high, and the fear of losing can lead to overpaying.

In this case, the buyer paid $200,000 over asking. But when the lender appraised the home for less, they had to cover the difference—money they didn’t have.

Before submitting an offer, do your homework! Check what similar homes are selling for in the area to avoid overpaying.

If you’re buying a condo, make your offer conditional on reviewing the status certificate—it’s like the building’s DNA. Your lawyer will analyze its financial health and let you know if the condo is well-managed. A substantial reserve fund means stable maintenance fees, while a weak one could lead to steep increases.

Whenever possible, also include conditions for a home inspection and financing approval. A little caution now can prevent big regrets later!

One of the family’s biggest mistakes was taking on more debt than they could handle. When buying a home, lenders don’t just look at your credit score and income, they also check two key numbers to make sure you can afford it.

Gross Debt Service (GDS) Ratio: This is the percentage of your income that goes toward housing costs, including mortgage payments (principal + interest), property taxes, heating, and half of condo fees (if applicable). Most lenders want this ratio to be under 35%.

Total Debt Service (TDS) Ratio—This ratio includes everything from your GDS calculation plus other debts, such as car loans, credit cards, alimony, and personal loans. Ideally, it should be 42% or lower.

If your debt ratios are too high, a slight increase in interest rates can turn homeownership into a financial nightmare. That’s precisely what happened to this family—they couldn’t qualify independently and needed two co-signers just to get approved.

Had they stayed within the recommended debt ratios, their mortgage payments would have been much lower and manageable. Instead, they stretched beyond their limits and are struggling to keep up.

The lesson? Just because a lender approves you for a certain amount doesn’t mean you can afford it. Stick to a budget that gives you breathing room.

The family is fighting to stay afloat, doing everything possible to avoid losing their home through a power of sale. But the stakes are even higher—if the lender takes over and sells at a loss, the two guarantors will be responsible for the shortfall.

This makes an already painful situation even worse. It’s a harsh reminder of why co-signing a mortgage is a considerable risk. If the primary borrower can’t pay, the lender will come after the co-signer.

Before putting your name on the line for someone else’s mortgage, ask yourself: Can you afford to take on their debt if things go south? If not, think twice because lenders won’t think twice about coming after you.