Mirror, Mirror: Mortgage Reflection Time

 

We need to turn off the television. Here’s why.

This post describes a few situations, of people losing their homes,  which probably should not have happened for several reasons. (Please read the article before reading the rest of my post.)

First, whether we like it or not, our credit reports (our credit histories) determine so much of our financial stability. There is nothing more important for a homebuyer when obtaining a residential mortgage. Nothing. We must maintain and monitor our credit. And when there is any issue, we must address that issue and clear up the problem immediately. The worst thing to do is ignore it. Read Rhonda Porter’s recent post. The website that she cites is heartbreaking. I think her post is extremely important.

The associated press article suggests that people “…who otherwise couldn’t buy houses because they had weak credit or little money for a down payment” could not obtain conventional loans. Sometimes true. Though the article is misleading. There are many programs for borrowers who have average or below-average credit and/or who have little or no money for down payment. So, contrary to what the article points out, these borrowers would not necessarily need a subprime loan.

Regarding the homebuyers whom the article cites, let’s look at the information that is provided:

Mr. Rodriguez: His (almost 100% financed) loan gave him a debt-to-income ratio of 44%. This ratio does not include his other monthly debt. So he has very little if not no room to save money. And so yes, he was lucky to refinance and find renters. But what if he couldn’t do these two things?

Mr. Beattie’s daughter: The debt-to-income is astronomical. Basically, her principal and interest payment alone (not including tax and insurance and her other monthly debts) is just over $5,000 and her monthly gross income is $1,666. Her payment is over 3 times higher than her gross (before tax!) monthly income. The article doesn’t give us other information.

My most recent post emphasized the necessity to budget. Before doing anything. My guess is that Mr. Rodriguez and Mr. Beattie’s daughter may have thought about their budgets, but they probably got bad advice from several sources and, more importantly, did not look in the mirror and ask themselves if what they were going to do was the right and best thing for them. For the present and for the future.

We need to turn off the television. We cannot live fantasy lives.  (Some people can live those lives, but they are a small percentage of the population.) Yes, there are many reasons for the subprime implosion and for many people to lose their homes. The freedom to make our own decisions, however, obviously falls on our own shoulders.

Please please please: when the television is off and the empty black screen, illuminated by a faint source of lamp light, reflects a face somewhat blurred yet still recognizably yours, look at it and ask what kind of future you want for this person. Then budget. Then write down and commit to this budget. Then start the process to buy a home.

 

 

6 May 2007 | Credit (Score), Down Payment, First Time Homebuyers, Foreclosure, Income, Pre-Approval, Programs | Comments

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