Mortgages and your new home.

Ok, there has been a lot of talk about subprime lending.

What is it?

Lenders take a larger risk when they agree to fund mortgages on homeowners who have high debt to income ratio’s, low credit scores,no money down, etc.

Home builders and Realtors are constantly trying to get loans for people with marginal credit or too much debt. The lenders started experimenting with making loans to higher risk clients under pressure from Builders and Realtors.the practice went too far and we found Realtors and Builders sales forces geting people home loans based on both spouses income and not considering their budget.This practice put many home buyers in trouble because with the new buy down loans, 3-2-1 loans,when the payments went up at the end of the first year,the homeowner could not make the payment.If one or the other was laid off or hours cut back or became pregnant or anything disrupted the income the homeowner could not make the payment.

The result of this practice is the largest rate of forclosures and Bankrupcies in History.

Each Political party will try to make this a political issue but the bottom line is “Poor money management practices by each of us.

“We want what we want when we want it”!

The mentality for the last decaid or so has been “I can have what I want when I want it with no regard for how we will pay for it.”

I purchased a new home 4 years ago. When It was being built I watched the people coming in the sales office to buy a new home.

Many of them had credit so bad they could not quallify for the loan on one income or in some cases they could not quallify at all.

They would fenagle and wrangle and lie to get approved for loans they could not afford.

Thinking to themselves”My income will go up and then I can afford it”.

No consideration to the unexpected expensed asssociated with buying a new home,they quickly found themselves unable to pay.

Excessive use of debt is the major factor in this senario.

When should I buy a home?

The popular beliefe in america for decaids is why rent when you can buy a home?

Seems to make perfect sense doesn’t it?

One of the problems is this,if you rent and you find yourself in credit or income trouble,you just move into another lower cost apartment.

If you purchase that home and streatch yourself to the max and beyond

and find yourself in credit or income trouble your stuck!

In My town Home values were giong up 15% per year 5 years ago.Builders were unable to build homes fast enough to meet the demand. As the matrket became saturated and more of the people could not afford the payments on the new home,they found themselves unable to sell and fell further behind until they lost there home’s.

On my street alone (about 40 homes) there are 4 homes abandoned.

The owner could not sell and could not make the payments so they just moved out.

My county has one of the highest forclosure rates in the Nation!

Every street in the newer neighborhoods has forclosures on it.

The home value today in my neighborhood is $40,000.00 Less than it was 4 years ago on average.

We can not blame the Government for this, we brought it on ourselves.

When then shoud I go into debt for 30 years for a home?

Lets consider a few basics.

First we should have a sound budget. One that has money left over at the end of the month.

Second we should eliminate all consumer debt! Credit cards,store accounts,finance company loans  family loans etc.

Next we should establish a sound cash reserve(Savings account) at least $2,000.00

Then we should save at the very least 5% of the ammount financed(preferably 20% or more). for a down payment.

We should establish with great care form our budget what we can easily afford to Pay per month.

Take great care here you will have taxes , insurance and associalion fees added to your payment every month,in most cases and THEY WILL GO UP EVERY YEAR!

Once you have determined these paramiters then go shopping with the mindset, we will not exceed these limits we have placed on ourselves period!

If you follow these guidelines your new home will be a blessing.

If you do not you may find,as tens of thousands of new homeowners have found,how quickly that dream home becomes a nightmare.

Don’t be too quickly pressures by family, friends  Realtors or Builders to buy a home when it is not easily affordable, or when we are in debt. or when our income does not merit the cost.

Take your time, do it right, make that home a dream home! 

Next time we will discuss the largest financial loss area in the American family.

INSURANCE!

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