A never-published sidebar.

In July, while I was working on the eleventh edition of Quicken 2009: The Official Guide for Quicken Press, I wrote the following sidebar for Chapter 13. But by the time I had completed it I realized that it was probably not a good addition to the book for various liability reasons. So I pulled it out and wrote this post, dating it to appear after the Quicken book was published.

I need to stress that the only thing I’m advising here is for people to be conservative when borrowing money. I don’t want to see the U.S. economy getting any worse, and I certainly don’t want to hear stories about people — especially people with families — losing their homes. Consider my advice and take it with a grain of salt. While there’s no reward without risk, there’s also a lesser chance of loss without it.

Here’s my unpublished sidebar:

Mortgage Options: What Does This Mean To You?

I’m not a financial advisor and I don’t feel comfortable giving financial advice. But here’s one piece of advice I feel I must give in this eleventh edition of my Quicken book: Don’t make unrealistic assumptions.

The mortgage crisis that’s currently going on in this country is due, in part, to unrealistic assumptions made by borrowers. Some people assumed that the home they were buying would quickly rise in value so it would be worth far more than they were paying in just a year or two. They reasoned that they could always sell it at profit if they had trouble making mortgage payments. Other people assumed that rates would continue to stay low or even go lower, so payments on their adjustable rate mortgages would stay the same or be reduced. And most people probably assumed that the economy would stay strong, fuel prices wouldn’t rise, and they’d stay employed.

Hindsight is 20-20. As we saw, the worst combination of economic changes recently hit the U.S. The “housing bubble” burst and home values declined. Soon, many people’s mortgages — some for 90% or 100% of the home’s purchase price! — exceeded the value of their homes. Some homes could only be sold at a loss, with the seller still in debt on a home he no longer owned. Interest rates rose and adjustable rate mortgages rose with them. The cost of living increased, making it difficult for many people to cover their living expenses and pay their mortgage. A rash of layoffs throughout the country left many people unemployed. It was the perfect storm.

When I advise readers not to make assumptions, I’m warning those of you considering a home purchase not to make the same mistakes that other home buyers made over the few years before the housing bubble burst. They assumed best case scenario and they were proven very wrong. It may be better to assume the worst case scenario. If housing values remain flat or decline, mortgage rates rise, the cost of living continues to rise, or you lose your job, can you still afford the home you’ve selected with the mortgage deal you’ve chosen? If not, perhaps you need to find a better deal or choose a more affordable home.

Be smart — not sorry.