More people are losing their homes

[disneysteve]

Re: More people are losing their homes

I think the main reason houses are being forclosed is more and more unwed couples are purchasing houses together. Without the tight bond of marriage relationships can dissolve more easily. It happened to an acquanitance of mine.

I suspect that might happen occasionally, but I doubt it is a significant factor. Considering how high the divorce rate is, I'm not so sure marriage is such a "tight bond" anyway.

[Snoopy2645]

Re: More people are losing their homes

Well as for marriage & stuff goes alot of people are also purchasing homes on thier own unmarried people I know I did with my trailer & the house I live in now I bought on my own.

I guess it goes both ways a single person with a house payment loses thier job or whatever then faces forclosure & when people divorce & half of the income goes out the window one person dont know what to do & is forced to move

[ren]

Re: More people are losing their homes

Building off what others have said, mortgage qualification standards became very lax the last few years. I wish I had the link to the story, but I saw that Fannie Mae has tightened up their restrictions for what loans they'll buy. They no longer will buy loans unless the home owner can qualify for the full payment of principal and interest.

Reading between the lines, I have to assume that means that not only have a lot of creative loans been made, but a lot of those loans were made to people who only had enough income to qualify for the initial interest-only or option payment. This means a lot of people are in homes they couldn't actually afford, which certainly explains the upswing in foreclosures. Horribly irresponsible on the part of the lenders, but you can't remove the blame entirely from the borrowers either. Common sense says that the $800/month teaser payment isn't enough to pay off a $300,000 mortgage -- it's only 1/375th of a loan that is supposed to be paid off in 360 months.

This run up wasn't sustainable, just a fluke of easy credit and some people losing their heads and thinking they'd get crazy rich. For example, Sacramento's peak median price was $399,900, back in August '05, with a median household income of $37,049, so houses were nearly eleven times income here. Returning to sustainable prices is going to be ugly, esp. for the wannabe Donald Trumps who were speculating on half a dozen houses at once and now can't sell them for what they paid or rent them out for more than a third of their monthly costs, but no one held a gun to their heads.

[QueenOphelia]

Re: More people are losing their homes

How incredibly depressing...homes worth less than they owe. Ouch!

Being upside down on your home is a scary thought.

I know a couple of uninformed people who took out 5 year loans on used cars and are now upside down on the cars. I would never do more that 4 on any car (and try to keep it to 3)

[disneysteve]

Re: More people are losing their homes

I know a couple of uninformed people who took out 5 year loans on used cars and are now upside down on the cars. I would never do more that 4 on any car (and try to keep it to 3)

Actually, people are often upside down on car loans, particularly new cars. A new car loses a big chunk of value as soon as you drive it off the lot. And as car loans have stretched out to 6 and 7 years, the number of people who owe more than the car's value has only increased.

[LivingAlmostLarge]

Re: More people are losing their homes

ARMs are not a bad thing, I have one and wrote about it on my blog. I actually like my ARM a lot, and it's perfect for it's purpose. That being said, we started with a small condo costing probably more than what most people paid for a home, $150k. On that condo(550 sq ft), we did ARMs, HELOC 1st, 30 year fixed, etc. It just depended on what the situation was at the tiem.

We did trade up to a townhouse last year when we moved, and eventually I'd like a single family home. Am I greedy? I don't think so, I think we did it modestly buying what was appropriate and fit our needs each time.

Unfortunately we live in a very expensive area both times, so our housing costs are crazy. But I think a lot of people rush out and try to buy the best home they can immediately. I'm 27 and a lot of my friends are trying to buy. But they aren't buying what we did a 1 bd condo, nope they are going for townhouses/single family homes. This is fine but they have little downpayment, no savings, etc. We got lucky we had 10% down, flipped it into 20% on the townhouse, and hopefully when we move we'll have 20% on our next place.

I don't like moving, but I don't think that jumping and stretching to fit into a SFH is ideal. I like the idea of slowing moving up. However next time we may stretch a bit and get into a slightly bigger SFH than I think we would pick becuase then we could grown into it and not move again.

I think if we hadn't bought when we did maybe I'd be pressured to buy. BUT I would have bought something smaller and wait the market out. I wouldn't rush to jump into a huge home.

To be honest, the condo was the best decision because we learned about maintenance, home ownership, closing costs on mortgages etc earlier than most people. Most of our friends have no idea the real costs of home ownership.

In fact our neighbors who bought for the first time in May, are 29 and 30 are shocked by what it costs. They were renting for $1450/month including heat, now I'm guessing about $3k/month payments easily, and $1k in utitlies etc. They are asking us if it's really this expensive, and we said yes. Too bad they didn't ask before buying.

[benosayi]

Re: More people are losing their homes

I heard on the radio that California is doing 50 year mort. I can only imagine what the real cost of the home would be.

[disneysteve]

Re: More people are losing their homes

I heard on the radio that California is doing 50 year mort. I can only imagine what the real cost of the home would be.

I also read yesterday that the most common new car loan today is 6 years. Sorry, but if you need a 6 year loan, you can't afford the car. I also read, ironically, that relative to the median income, the average new car is the most affordable it has been in over 25 years.

[ChimbleySweep]

Re: More people are losing their homes

I think the whole "trade up" mentality is relatively new. Years ago, people were much more likely to buy a house and live there forever, even passing the house on to family when they died. You just don't hear about stuff like that anymore. We have various friends who are on their 3rd or 4th or 5th house since we bought our one and only.

I think this hits the nail right on the head. Our best friends were house hunting the same time we were. We ended up choosing a great split level about 1400 sq. ft. (not including the garage), because we anticipate having kids soon. Our best friends chose 2800 sq. ft. because I think they wanted to show us up. They paid about $60,000 more for their home. They aren't married and have no plans for children. Why would they buy a home that they still haven't furnished??? Because they don't want to wait.

[Elgin526]

Re: More people are losing their homes

I also read yesterday that the most common new car loan today is 6 years. Sorry, but if you need a 6 year loan, you can't afford the car. I also read, ironically, that relative to the median income, the average new car is the most affordable it has been in over 25 years.

That's my rule, too. If I can't pay off the car in 3 years, I can't afford the car, period. I did 5 years on my current car, but I'm 8 years into it now and plan on running it into the ground, so that's okay. The first 4 years I didn't mind the payment, but that last year I was so sick of it, I'd grumble the whole time I was writing out the check! I swore never again will I have a loan longer than 3 years!

DH and I bought our home at the hight of the market (Aug of '05) but we had 20% down and were looking at homes we could afford (and we determined what we could afford, not the bank!). We also did a 30 year fixed. Our house payment, including taxes and homeowners, is 25% of our net take home pay. It's a fixer upper, and it's small in a so-so neighborhood, but (hopefully) we'll make a little money on it when we sell in 5 years or so. As long as we at least break even, I'll be happy!

[LivingAlmostLarge]

Re: More people are losing their homes

I think this hits the nail right on the head. Our best friends were house hunting the same time we were. We ended up choosing a great split level about 1400 sq. ft. (not including the garage), because we anticipate having kids soon. Our best friends chose 2800 sq. ft. because I think they wanted to show us up. They paid about $60,000 more for their home. They aren't married and have no plans for children. Why would they buy a home that they still haven't furnished??? Because they don't want to wait.

I bought without being married, it happens. And funny how many people do it. It turned out okay for me but I do say it's one of my stupidest moves. Also I think buying a home you can grow into sometimes is better than buying small and having to trade up. There are costs involved. Not super huge but something. I'd love a SFH, but am stuck in a townhouse just because that's what I could afford. If I could have afford an SFH I would have.

[shengmei]

Re: More people are losing their homes

Do you know the banks wouldn't let you get a mortgage if you try to pay off more than 1/4 of the house in the down payment? My mother just bought the house. She had to pay it in cash by liquidating her stock portofolio. She wanted to get a small mortgage and pay off as much money in the beginning as possible. The banks wouldn't let her pay more than 1/4 of the house from the beginning. They said that she either had to pay the house in cash outright or buy a much larger house so the down payment would be less than 1/4 the value of the house.

She ended up buying a much smaller and older house than she originally intended and paying in cash. I thought it was somewhat cruel that the banks can mandate how much you can pay them back so they can make a maximum amount of profit.

[Joan.of.the.Arch]

Re: More people are losing their homes

Shengmei, I've never heard of such a thing. If your mother had enough money to pay 1/4 as a down payment, but could not get the loan she wanted for the other 3/4, couldn't she just pay down 10 or 20% at the beginning and then later prepay as many monthly mortagage payments as she had money to cover? :

[tinapbeana]

Re: More people are losing their homes

thought of this thread when i got junk mail yesterday!

my current loan is 60k on a home appraised at 75k and my payments are 492 (cruddy interest rate).

we got an 'offer' for a proposed loan amount of 106250 with a payment of 500.26 and an APY of 5.65. DH asked me to read it to see if it was worthwhile, b/c an extra couple of grand would allow for a lot of home improvements. valid point, so i read it.

here's what's on the back

"Loan rates and payments may vary depending on overall credit worthiness and are subject to change or may not be available at the time of loan commitment or lock-in. The initial rate and APR are variable rates which may increase after closing. This loan is available on first mortgage refinances with a 8.34% APR and 360 payments. Payment quoted uses an interst-only option. Rate quote at 80% loan to value."

this is wrong on so many levels, i cannot even begin to describe! and yet, i wonder how many folks just look at the loan amount, the monthly payment, and sign right up?

[disneysteve]

Re: More people are losing their homes

Do you know the banks wouldn't let you get a mortgage if you try to pay off more than 1/4 of the house in the down payment?

Sure they will. That doesn't make sense at all. Let's say I owned my home outright, which is worth about 300K. If I sell it and buy a new home for 600K, I'd be coming into the deal with 50% of the purchase price. I'm quite certain banks would be happy to lend me the other 300K. If what you said was true, lots of people would never be able to trade up (or downsize either) because they'd have more than a 25% downpayment.

However, I do think that some banks may not issue loans below a certain amount, so that might be the problem she encountered. But I'm sure if she searched around, she could have found a lender who would make a smaller loan.