What were people thinking? Mortgage related

[getforfree]

We got a loan where there was no income check. If they would go by our income, we wouldn't be able to get ANY house, even the cheapest one, or even a condo.

And if we wouldn't buy the house 3 yrs ago. we would never be able to afford any. Well, maybe now we could, but the prices are much higher, and we would overpay because we waited.

We took our after-tax income, figured how much we spend on food, gas, utilities (we knew they are higher in houses than appts, so we asked around how much they pay), car insurance, oil and filter for cars. And we also needed to buy fridge, washer and dryer and spend tons of money on the house repairs.

It was very risky, but it was worth it. Our mortgage payment was 80% of our income that time. It's less than 50% now (after tax), but we survived and built up a good EF and have more expensive cars. We never had to wait till paycheck to be able to buy groceries or pay the bill, never had a balance on a cc.

I think, if you can manage every penny you have and know where it goes, you can survive even if you have to spend 80% of your monthly income on housing.

Those who make 90k/year, after tax , that's 7.5K/month. Even if they pay 6k/month for the housing, they have another 1.5K to live on. Just because they make 3x more than some other people doesn't mean they need 3x more food or 3x more clothing. They can do it still, if they live frugally.

[JasonEngler]

I prefer to stick to the rule of your mortgage payments not being more then 25% of your combined annual salaries.

e.g.

$90,000 annual salary x .25 = $22,500

$22,500 / 12 (months) = $1,875

So regardless of how sloppy the broker is, or how horrible the interest rate is, they should never be paying more then $1,875 per month for their mortgage payment... fixed, adjustable, or any other new fancy way of financing that becomes available.

Shame on EVERYONE in that deal!

[disneysteve]

Originally Posted by getforfree

Our mortgage payment was 80% of our income that time.

I think, if you can manage every penny you have and know where it goes, you can survive even if you have to spend 80% of your monthly income on housing.

I'm glad it worked for you, but I'm not so sure it is doable for most people. Out of curiosity, I ran the numbers for us. Assuming an income of 120K, take home of 84K, that makes 80% $67,200, leaving $16,800 or $1,400/month to cover everything except housing.

Gas, electric, water, phone (land line only), internet and insurance (auto/life/disablity) total about $1,100. That would leave just $300/month for things like savings of any type, cell phone, synagogue dues, home alarm, gas for the car, car maintenance, home maintenance, food, etc. There is no way we could truly get by on $300/month.

[getforfree]

when we bought the house the payment was $1600/Month with $400 left for bills and food.

100-120for utilities and phone, didn't have internet that time, 80-100 for food and groceries, 2 adults and a baby, and I was pregnant, 80 car insurance, 100-150 for gas.

Then We adjusted our w4 forms and had about $20 extra/month just in case and for repairs.

We also had 1500 stashed for repairs. The house we bought was sold as is and needed lots of repairs. And after about 9 months we were able to get rid of mortgage insurance because we did lots of improvements and the house values also went up, so we had enough equity there. So we had another $120 that we could use for repairs. Then my dh got raise and I got a better paying job.

For about a year, Dh and I didn't buy any clothes or shoes, we did some for the kids only. We ate mostly potatoes, pasta and rice, we had to be really creative.

[myself]

Originally Posted by JasonEngler

I prefer to stick to the rule of your mortgage payments not being more then 25% of your combined annual salaries.

e.g.

$90,000 annual salary x .25 = $22,500

$22,500 / 12 (months) = $1,875

So regardless of how sloppy the broker is, or how horrible the interest rate is, they should never be paying more then $1,875 per month for their mortgage payment... fixed, adjustable, or any other new fancy way of financing that becomes available.

Shame on EVERYONE in that deal!

Jason,
As the saying goes ... "to each his own".
My pay is about $98,500/yr. (gross pay), and our mortgage payment (not including homeowners insurance or taxes) is $1,937. Your calculations work for me now, however when we refinanced to get a shorter term mortgage (15 years) at a lower rate (5.5%), our mortgage payments alone increased to 30% of our gross income. And FWIW, our property taxes are pretty high ($7,200/yr), since we live in NJ.
With that said, we'll be paying more on our principle than we are on interest for our mortgage, this coming November.

And like the "shameful" persons that we are, we just bought an investment property for $88k, that we'll be spending $45,000 to fix up and either resell or rent out. And that was without using a single penny of our own.

[jIM_Ohio]

different rules for different people.

Just because it worked for one will not make it work for another.

what the bank will lend you and what you can afford will always be two different things.

[macho]

short e-trade and if you have an account with e-trade close asap they own 30 billion of subprime loans and only have a market cap of 5 billion when these loans get marked to the market e-trade will have to shut down and you will not have access to your investment account until SIPC figures out what to do

[masonjarjar]

Originally Posted by Scanner

It's an insidious trap because I think the woman is thinking, "Well, my parents struggled and built up what they have. . .we'll struggle a little while and it will all work out."

I wonder if they realize that "struggle" doesn't mean the same thing as it used to. "my parents struggled and built up what they have" probably means they lived below their means and saved a lot of money, while saying "no" to a lot of luxuries.

It's a different kind of stuggle than the struggle of living paycheck-to-paycheck to pay for cars and a house you can't afford..

-Mason

[Exile]

The landscape is littered with casualties who thought they could a handle a huge mortgage until their financial house of cards and the housing market collapse. The risk just isn't worth it.

[DavidSB1950]

No Sympathy Here At All!!!.... Many people are under the impression that because "other people" can afford a large house then they deserve the same.... Well maybe the "other people" make 3 times their anual salary....

My wife and I wanted a larger house than we could afford so what we did was subcontract it to stay within the budget.... 15 years later, it was the best decision we every made as the mortgage is 30% of its value (per the property tax rolls)...BUT... the net result was we didnt spend any more than our budget would allow..

[Ima saver]

My parents bought a house in the 40's. They struggled every month to make the payment and then pay the house off. There were mortgage parties back then when you burned the mortgage. They had one card. Everything they bought was with cash.
When they retired in the 50's they moved to florida and paid cash for their new home.
So, it was important for me to buy my first home at an early age. I saved and saved for 18 months til I had the down payment.
We moved in with no furniture, just a couple of borrowed beds. It took a few years to furnish the house.
We scrimped and saved and did without and I paid the house off in abut 11 years.
Except for a few short years, we have been mortgage free every since. We did take out a short mortgage to finish the house we are in, but I got it paid off in 2 years. My payment was $500 a month and I thought that was terrible.
I feel sorry for people who don't realize that they need to start out in a small starter home that they can afford and get it paid off. Then they can trade up like we did.

[disneysteve]

Originally Posted by Ima saver

I feel sorry for people who don't realize that they need to start out in a small starter home that they can afford...

If people can't figure out that they shouldn't buy a house they can't afford, I don't feel sorry for them at all. Maybe I'm being overly critical, but how the heck do you spend hundreds of thousands of dollars on a purchase without first sitting down and running the numbers to make sure you can afford it? We're not talking about buying a $400 handbag or taking a $5,000 vacation. We're talking about spending $300,000 or $500,000 or even more on a house. You don't need to have an MBA for it to occur to you that you should check how much it will cost you each month.

[moneybags]

how the heck do you spend hundreds of thousands of dollars on a purchase without first sitting down and running the numbers

There are lots of people that can't run the numbers, and there is another group that believes the lenders & realtors that say "you can afford this". Personally, it wouldn't happen to me, but I can see how it does.

There is also the hidden cost of owning a home that first time buyers may not realize or factor into their calculation. I know people that had to run out and buy all new furniture, on credit, when they bought their first home. I didn't have a bed with a headboard until I was forty. Hand-me-downs and used furniture served their purpose until they could be replaced (some haven't yet ). Again, it is that "keeping up with the Joneses" mentality.

[cptacek]

Originally Posted by moneybags

There are lots of people that can't run the numbers

This makes me mad. All of this stuff was taught in high school math, and if people weren't scared of math, maybe they wouldn't make their lives hell.

I'm with Steve. Shame on them.

[rob62521]

We were watching an episode of Big Spender. This couple had purchased a house, well, actually the husband had purchased the house while the wife was in the hospital recovering from childbirth. He bought the house through Craig's List. He apparently hadn't checked the local property values and so on. They were overspending their take home pay by over $3000 a month on just set bills. When Larry Winget suggested they sell the house, a realtor was brought in and he told them they had set a benchmark for homes in their area and had overpaid by over $30,000. So, I would say he not only didn't run the numbers, he didn't do much else either!