Posted on 12/04/2006 1:47:48 PM PST by RobRoy
That's their retirement plan.
They wanted to live beyond their means.
I spent many years as a mortgage loan officer. People just don't want to accept that they can't afford a particular house. There is always a loan officer out there that will put them in a dangerous loan in order to get them to closing. Just because you are approved for the loan doesn't mean it's a good idea to buy that house.
"Any one asking for an ARM is a fool. That's the way to certain foreclosure. An ARM makes sense if you have a steady income and you intend to live in a home only a few years. But if this your home for life, a traditional 30 year fixed is always the safer option. I suspect if they had taken a 30 year fixed, they wouldn't be facing foreclosure now."
Depending on the research you read, the average American lives in their home 7 yrs and in their mortgage 5 years. For those that aren't living in their "forever" home, ARMS can make a lot of sense. The issue isn't the type of loan, it's the loan amount, lack of down payment, living beyond their means.
Not just loan officers. Realtors use the phrase "push up" to young couples. "You will be making MORE money in the years to come....blah blah" When we looked for our first house we dumped our realtor because she only showed us homes that were above our price range.
hubby and I bought our starter home three years ago this month. Boy did they try everything to get us to avoid the very traditional loan I insisted on. We bought a smaller how than we would have liked, but when hubby was unemployed we could still comfortably make our mortgage payments.
We thought we would sell by this time, but turns out we're just fine where we are, and don't have the pressure of an ARM bearing down on us. I still want a bigger house, but we will do it when we can afford it through thick and thin.
The loan officer told me at the time that we were one of the cleanest loan applications he had seen in a while. Thirty years, 20% down and no prepayment penalty.
"Beer budget and champagne tastes". Bingo. Learning to live within your means is one of the true hallmarks of adulthood.
Our congregation had a family who had the same problem, perhaps worse. They didn't own a home but they rented a very nice one (and proceeded to trash it). They were constantly in need of help with bills and groceries yet their home was filled to the rafters with toys, toys, toys as in huge television, nice furniture, pool table, several computers, guns, game systems, motorcycles, the best cooking equipment and on and on. They took their kids to Disneyland and other places. When I would help them on their food orders, their menus amazed me. I couldn't think of any other parishioner who could afford to eat as that family wanted to do. In one two-week order, they wanted 68 pounds of high quality meat, all for a family of with six kids ranging from age twelve to newborn. They wanted bacon and eggs for breakfast, chicken enchiladas for lunch and roast for dinner, every night. This was a family where only the husband worked, and sporadically at best, where the couple had married in their teens and had little or no upward bound job prospects yet they wanted to live like the yuppie professionals around them.
They eventually moved away and I saw the husband awhile back, picking up more food paid by their congregation, still living far beyond their means. I suppose my congregation was somewhat at fault for enabling them but when we or another congregation would start to put pressure on them to scale down their lifestyle, they just picked up and moved on to another gullible group. They will probably never grow up.
When my husband and I moved to California back in 1992, I nearly choked at the home prices. A wise supervisor at my husband's business advised us to try to purchase a home with which we could live for a long time. He said he saw too many younger people settle for an inadequate house, thinking they would move up, but instead being stuck in a home they hated. We went with the upper limit of what was advisable for us and it worked. Of course, we were very frugal, use no credit cards, and our only debt is the house, in which we now have around $400K equity. Most people take risks. A few of us luck out. A lot get burned like this couple.
>>Come on...they both lost their jobs, she has cancer, he just started a new career...and the wrong mortgage is the problem?<<
Your point is well taken.
However, he now has a job. And the resetting of the load was a problem regardless. However, this is not as unusual a case as you might think. Lot's of people have health problems. She had a benign growth removed. Happens to lots of people. Usually they don't even loose their jobs.
And buying a home with zero down and interest only when you are not well established?! That is just asking for trouble - which a lot of people do.
And one of the reasons the housing prices are where they are today is becuase demand was created out of thin air via crazy loans to people that could not really afford them. As with any pyramid scheme, if you got in early you are ok. If later, well, that's why pyramids are bad.
Oh, and the "thin air" from where the buyers came was "renting". I've been renting in the Seattle area for eight years now. While housing prices have skyrocketed, rents have been absolutely flat. I guess there is no shortage of homes.
Although I tend to agree, the fact is that the old "champaigne taste on a beer budget" used to get people in trouble. Now it can ruin them for life.
You can quickly get into so much more trouble than you could just a decade ago. It took serious incompetance and financial narcissism in the past to get into the kind of trouble you can pretty much just slide into today - with a lot of peoples blessing.
Exactly what my wife and I did. We have friends who, if the lender said they could spend 300,000 they went right ahead and borrowed it all.
We kept ours to approx 150, it's small, it's ours and I don't have to go out a get a second job.
Also I think I'm the only one sleeping at night.
Also no ARM thank god.
I wonder how much of the SEA RE market is speculator-driven?
I suspect a correction in the works...
Pam acknowledged she didn't carefully read all the documents and hadn't fully realized that for the first two years, they would pay just the interest on the loan, and that the interest rate would reset this coming spring.
I guess even idiots can become accountants these days.
Getting an 80/20 to avoid PMI is not insane. Paying PMI is insane.
Interest only is at least idiotic, if not insane.
Certain foreclosure? All ARMs end in foreclosure?
A ha!
Now you've gone and done it. You've made sense.
My brother owns two downtown condos now. He only lives in one. ;)
The note is usually four pages, and the adjustability is carefully spelled out. And ARMs have a disclosure statement in layman's language. Even the Truth-in-Lending states on its face a payment that applies for 24 or 36 months, followed by an estimate of the higher payment that follows. It's not impenetrable.
Certainly not to an accountant, anyway...
Sometimes there are no "cheaper homes".
My friend sold his dump three bedroom rambler on a postage stamp lot for $305k.
Unless I was swapping homes, I would be a fool to enter the real estate market at this time, with these prices.
You are correct. Theres one hell of a lot of mumbo jumbo on those 50 page docs you sign.
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