Why do people buy homes they can't afford?

[gingersmom]

I was reading this article in the NY Times yesterday. And it was about people who had taken out interest only loans (mortgages) that were going to be resetting (the rate was going to change upwards significantly). Of course no one is going to be able to afford the new rate.

 

I just don't understand the sense of entitlement.

 

One couple profiled were school teachers from California with one child. I would love to live in their house also. But I probably couldn't afford it either. I wouldn't buy it in the first place.

 

They said they would not be able to afford it when the rate reset and they would probably have to walk away from it (foreclosure).

 

Don't people think about this when you buy the house?

 

What ever happened to saving to purchase your new house. Or living in an apartment until you can afford to buy your first home.

 

I have run out of sympathy for people who clearly got themselves into this mess with their eyes wide open.

[lgm]

From the stories I've heard, many bought with the intention of flipping the house before the balloon went up. Others knew they couldn't afford it, but it was cheaper than renting an apartment or townhouse and they didn't care about the ramifications of walking away from the mortgage.

Seems like scam artists were on both sides of the table.

 

The stories of people stripping their former mansions are kind of funny.

[Ottakee]

I think that many young couples want to START out where their parents are now. They don't want to start with a "starter house" or small apartment, have used/hand me down furniture, be satisfied with a basic TV vs. a big screen one, etc.

 

Credit is also very easy to get (or at least was until recently).

 

I just saw an ad for Art Van furniture with a newly married couple on it that were saying that they spent all of their money on a fancy big wedding and now they didn't have money for furniture.............but never fear, the no interest, no payment plan would help them get all of the new furniture they wanted.

 

My thought is, have a smaller wedding and pay cash for the furniture or wait until you can pay cash for it.

[TraceyS/FL]

They didn't talk about THAT aspect of buying out west.... prices were going up, no one thought they were going to dump like what happened.

 

The people that bought my best friends 1100sf, 1950's tract/starter home paid $305k.

 

They both were berry pickers.

 

And that about sums up the type of loans the BANKS were making.... the BANK should have said NO, and only allowed them to buy what they really could afford.... the problem is/was - there wasn't anything for sale that "cheap".

 

I can fully believe that not everyone did go into it with their eyes wide open..... but i have the benefit of having lived out there and thru it and saw and heard what was going on.... Enough that when we moved here 5 years ago i knew this is EXACTLY where we'd be.... my realtor here in FL laughed at my "predictions". SHe's not laughing now....

[Laura Corin]

I was reading this article in the NY Times yesterday. And it was about people who had taken out interest only loans (mortgages) that were going to be resetting (the rate was going to change upwards significantly). Of course no one is going to be able to afford the new rate.

 

I just don't understand the sense of entitlement.

 

I read it more as (possibly wilful) ignorance of the boom/bust cycle. They expected house prices to go on up and solve their problems for them.

 

The UK experience of interest-only mortgages has been slightly different. IOs have been around for a while, but are all-through interest only, so you pay just the interest for the whole period of the mortgage and then use some other resource to pay off the capital. Again, selling the house for a profit can work, or some people use other investments to pay it off. It's sometimes a good option for people who know what they are doing, but it's too easy for less money-savvy buyers to come to the end of their mortgage period and only then really realise that they don't own the house.

 

Laura

[rafiki]

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[Jane in NC]

Remember that Wall Street was packaging these no interest mortgages and selling them to large investors, hedge funds, etc. The investment people were hungry for mortgage backed securities in any form, hence the creation of instruments where income levels were not checked, loans that exceeded 100% of the cost of the home, etc. While you can blame the people who bought these mortgages, I am also critical of the industry that created them.

 

A bank that went under recently in my neck of the woods did so because of loans to "developers" who had minimal prior experience in the construction business. A lot of money was exchanging hands quickly with minimal oversight.

[unsinkable]

linky? pretty please? :)

[Saille]

And we had been approved to look at much more expensive homes.

 

That is the part that just burns me up. We originally went through Countrywide with this house (the mortgage has been sold). We'd had a mortgage with them prior to 9/11 and had a good experience. This time, the broker was approving us for 20K more than we could afford. He actually told us we were being too selective about houses, we should buy a more expensive one so we'd be out of our temporary rental sooner. We explained why we couldn't. We showed him a spreadsheet of our monthly expenses, and there was clearly NO wiggle room. He didn't quit until we flat out told him to stop talking about it: the issue was off the table, period. If that's the way he did mortgages around here, I bet when Countrywide collapsed, someone was burning him in effigy on his front lawn. Thank goodness we didn't listen.

[Melinda in VT]

I agree that banks and lenders bear some responsibility for the current housing crisis.

 

But I also know what the OP meant by the "I deserve it" attitude. I've noticed it a lot in advertising and on reality TV. Of course, I don't see it among the people I know personally, so I hope the ads and TV shows are not representative.

[wagnfun]

I'll use our situation as an example. If we would have known 2 years ago what our current mortgage is we would have never taken the loan. Even though we can make the payments, this high of a mortgage, just doesn't make financial sense for us.

 

We moved into a new state, which is stressful enough. We looked at used homes which were poorly upkept, had smells, etc. and decided to build. We were in temp living for 3 months waiting for our home to be built because our other home had sold and dh was working in the new state. Our builder and realtor gave us estimates on our monthly payment, as did our mortgage broker. We put 20% down on our home and took a traditional fixed rate mortgage. We settled, moved in, that was our payment, for about 6 months. Then we got a letter from the town, and shortly after our mortgage lender (we escrow). Our mortgage payment went up ~$200 per month due to our previous monthly payment being based upon paying tax on our land only, not the house. Live and learn, we dealt with it. 12 months later, just this July we got another notice, our taxes increased an additional $300 starting this month. We put our house on the market last month.

 

Dh is also making less now then he was when we moved here, bonus programs have been cut, retirement program taken away, he's had mandatory weeks off unpaid, yet health care premiums have risen, etc.

 

And we had been approved to look at much more expensive homes.

 

My brother is another story. He bought a home at the heat of the market in a pricey area of Southern Calif. OC. He owed his own buisness that was doing well and has money. His house payment was $4000 a month but he could do it without a problem so he bought the house. The variable interest over time went from a very low interest rate to 17%. His new insane payment is $12000 a MONTH. Yes everyone knew a variable rate increases but no one thought it would increase by that much. He has sold things, his car, and taken money out of the business to keep his payment all while trying to get the loan re-established (whatever they are doing with these loans now). My brother is lucky to be able to do it but I dont know anyone else that could make a payment with a jump like that.

 

Unfortunatelyjob losses affected those who got the 350K home loans and were barely hanging on and can no longer make payments.

[lgm]

Another factor for existing homeowners is the taxes. Assessments here went crazy, with towns going around at the peak of the market reassessing everyone to the value at market peak. This gave us all gigantic increases in property taxes and of course drove the school tax up too. Not a good formula for those on fixed income or those who experienced a decline in wages. So few houses are selling now that it's difficult to come up with comps for tax grievance day. And now our legislature has not renewed S.T.A.R. (a property tax rebate program) so we'll see our taxes go up again. Most people could not afford the house they are in if they had to buy at the current assessment. The towns and school districts loved the money , and are certainly not decreasing their budgets back to non-peak level.

[KidsHappen]

The same reason they buy lottery tickets.

[MariannNOVA]

I taught with a woman whose combined income with her dh was less than $30k/anuually. They purchased (3 years ago) a home for $500k (more or less - no money down)..........their payment amount reset soon after they moved in.....they have not made a mortgage payment in 30 months....they are still living in the house.....the mortgage company is in the foreclosure process but there are court dates after court dates and the judge seems (thankfully for them) unwilling to move forward in the foreclosure process so they remain there -- they have three children. The judge has ordered the mortgage company to 'modify' the loan according to the current assessment which is probably considerably less than half of what the house originally sold for.

I have watched this play out and I shake my head -- so many individuals on every side of this transaction from the beginning (why was a realtor showing $500k homes to a couple in this bracket? predatory lending by the original financier without a doubt) who were not acting in good faith.

 

All that being said, 'greed' has alot to do with the current housing bust.

 

I think what bugs me most right now is that I read statements from 'Realtor Associations' etc every week saying that 'the housing market in Northern Virginia is leading the way for the nation in recovery.' That is just someone blowing more smoke, imo. Why do these individuals think that something will be 'true' just because they say it is? Credit is tighter than ever (and rightfully so), folks are worried about losing their jobs, food, health care, etc are more expensive than ever.....people thinking about those factors are likely NOT looking to move up to a larger home. Perhaps if the media would forget about putting a 'spin' on things and tell the truth, at the very least, folks would have an idea what was going on.

 

Just my .02 -- I could go on for hours about this :glare:.

[angela in ohio]

I just saw an ad for Art Van furniture with a newly married couple on it that were saying that they spent all of their money on a fancy big wedding and now they didn't have money for furniture.............but never fear, the no interest, no payment plan would help them get all of the new furniture they wanted.

 

BINGO!

 

We are a one-income family. When we sought pre-approval to begin house shopping two years ago, we were astonished at what they were willing to lend us (three times what we actually spent on a home.) It would have been fun to buy a giant home to impress our friends. :001_smile: We used self-control instead. But I sleep comfortably at night knowing that we will not have to make tough choices rather than give up our big fancy house that now makes us who we are. I see so many people trapped by pride, sacrificing their families in order to keep a huge home they can't truly afford. Or they took out huge re-finances or home equity loans to pay for other things and now can't get out from under that.

 

There are a number of people who legitimately have lost their homes (lost job, etc.) That has always been the case and always will be. We should seek to help them (privately, not the government.) What we are seeing now is the result of adding to that a large number of people who didn't think about consequences or the future or who did and didn't care.

 

Honestly, the only government intervention I would like to see in this is a mandate to teach financial literacy in schools (instead of consumerism) and a mandatory pre-mortgage educational program.

[kalanamak]

Since no one else has, I'll blame TV. People who are easily led look at the how life's problems are solved in 30 minutes, and everyone lives in a comfortable, clean house, and never seems to have to work.:)

[gingersmom]

We looked at used homes which were poorly upkept, had smells, etc. and decided to build.

 

 

 

I bought one of those homes. Because that is what I could afford. And eight years later I can still afford it. And twenty years from now I will still be able to afford it.

 

It is no longer poorly upkept and smells quite nice.

[MariannNOVA]

Since no one else has, I'll blame TV. People who are easily led look at the how life's problems are solved in 30 minutes, and everyone lives in a comfortable, clean house, and never seems to have to work.:)

 

:iagree: I mentioned blame being placed on the media -- yes, the tv 30 minute solution is HUGE. News stories about 'recovery,' sales in homes increasing, blah, blah, blah....all the ridiculous 'spin' that is put on statistics to make folks think they should be spending and not watching every penny --

 

the media -- YES -- not just tv -- folks, unfortunately, 'trust the deliveryman most.' They don't think about what they hear, they simply believe it. NO THINKING SKILLS.

[gingersmom]

linky? pretty please? :)

 

http://www.nytimes.com/2009/09/09/business/09loans.html?_r=1&scp=1&sq=the%20house%20trap&st=cse

[Nestof3]

I think most of us Americans suffer from wanting more, being discontent, wanting what someone else has, etc.

 

I know I sometimes get very frustrated because I want more house space, but I am thankful that we've had the wisdom to stay put, learn to be content, and not allow our lives to be consumed with a huge mortgage. We still have the smallest house of anyone we know.

 

If you cannot afford a house if the rate changes, you shouldn't be getting the house. I would never get anything but a fixed-rate mortgage.

[Denisemomof4]

we had several mistakes happen. Dh is a VERY bright and business savvy person who reads all the small print. He really should have been a lawyer, he has acted as one several times and has done a fantastic job at it. Lawyers he's worked with have even used HIS advice. :001_smile: But that can't help us when the banks screw up and make a mistake.

 

We bought our home 13 years ago. Yes, it was at the top of what we could afford but we prayed about it and felt it was definitely the home for us. It is our dream home, but we felt like it was OURS the second we walked through the front door. Things were tight that first year but dh quickly got high raises and promotions and we were living comfortably for years. Then 6 years ago dh decided to fulfill my lifelong dream of owning my own horse. We had all the site work done and had the plans drawn up for our barn. Dh's salary had nearly doubled in the 7 years we had lived here and after crunching numbers and working with the bank, we decided to pay cash for half of the project and finance the other half (we were also adopting at the time and that is NOT cheap!) as it would only cost us $150 per month. We built a gorgeous barn with a large carriage house attached. We were doing simply fine for TWO YEARS. Once the bank sold off our mortgage we were notified that there was a negative balance in our escrow account and we had to pay an additional $800 PER MONTH to get caught up. :eek: We were lucky that we were able to do that.

 

Now, years later again, dh's company had shut down and he took a lesser paying job which allows him more time to be with the family. He is always home by 5:30 at night. We could have more money but we want more family time. We live comfortably but not as much as we did before we built our barn. What has impacted us the most is my head injury caused me to lose all my money wisdom and I can't stick to a budget for the life of me. We'd be living comfortably if I could just get this under control, and groceries are my biggest issue. I've come a long way but don't think I'll ever get us to where we once were.

 

Mind you that dh's salary now supports 6 people, including two bottomless pit teenage boys, and 37 animals. But we're happy, feel blessed, love our country life, and wouldn't change our lifestyle for a THING. Our mortgage was once considered very expensive, now it's really low compared to what many pay. And our home will be paid off in 12 more years. :thumbup: We pay two extra pmts. per year.

[Home'scool]

There is the concept, in a stable housing environment and economy, that your income will keep increasing. And a lot of people stay in their houses for years and years, so what you can afford when you buy it is different that what you can afford, say, 10 years later.

 

That doesn't mean that you should be house poor for years and years, but the concept of stretching your ability to meet the payments might only be temporary. And maybe you get a better house for it. Maybe a house that is a better investment in the long run.

 

Just some thought.

[Georgiana Daniels]

Just a thought, but sometimes that's all that's available in the town where someone has a job.

 

For example, one house we looked at--the absolute cheapest we could find in town during the height of the market--was $217,000. This was a 50 year old, run-down, 3 bed, 1 bath home in a scary neighborhood. Apartments aren't much better here--over $1000 a month for a 2-bedroom. Soooo....sometimes there are few options.

 

(No, we didn't buy the house.)

[shalom22]

What has impacted us the most is my head injury caused me to lose all my money wisdom and I can't stick to a budget for the life of me. We'd be living comfortably if I could just get this under control, and groceries are my biggest issue. I've come a long way but don't think I'll ever get us to where we once were.

 

Mind you that dh's salary now supports 6 people, including two bottomless pit teenage boys, and 37 animals.

 

 

I have a suggestion to help with the grocery part. Have you tried the Grocery Game? I have been doing it for the last four months and it has cut our grocery bill in half and I have a stockpile of groceries in the house. They have a free four week trial period. Just go to thegrocerygame.com to check it out. It is worth the time and effort.

[Paisley Hedgehog]

nm

[erica471]

I think that it is a combination of a lot of things. I do agree that there are elements of greed and materialism. But, I think the financial institutions are most at fault.

We bought our current house probably at the top of the market. It is something we can easily afford. We had excellent credit scores and a 20% down payment. We wanted and got a 30-year fixed rate mortgage. But, the broker tried to talk us into taking a 80/20 loan so we could invest the 20% and "make the money work for us". Luckily, this wasn't our first house purchase and we were savvy enough to say no.

 

But, what if we had taken this "deal"?

[TraceyS/FL]

To an extent yes, but in my town in CA - a HUGE number of first time home buyers were people that did not have enough grasp of the english language to understand what they were getting into. They were taken advantage of, and it's not right.

 

Sure, they should have known and researched it more.... but the greed of the translators (or the people providing them) was there too, and those people are victims. I do think there should be a native language education phase to buying a home - with a segment that explains how taxes and assessments work in that area.

 

I know this wasn't happening everywhere - but the trend started in CA many years before other places. Now look where they are.....

[Renee in NC]

There is the concept' date=' in a stable housing environment and economy, that your income will keep increasing. And a lot of people stay in their houses for years and years, so what you can afford when you buy it is different that what you can afford, say, 10 years later.

 

That doesn't mean that you should be house poor for years and years, but the concept of stretching your ability to meet the payments might only be temporary. And maybe you get a better house for it. Maybe a house that is a better investment in the long run.

 

Just some thought.[/quote']

 

That was the philosophy under which we were convinced to build our house. We had bought the land and moved our singlewide mobile home to it. The plan was to build a small cabin within 3 years (with cash.) Instead, about 6 months later my mother convinced us to build our house. It was 1300 square feet and cost about $97K to build, with the additional $48,000 we owed on the land. It *was* too much, but my mother insisted that pay would keep going up, it would appreciate, etc.

 

Five and a half years later, we lost the house to foreclosure. The price of gas kept going up (dh commuted 40 miles each way), wages stagnated, and we accumulated too much debt trying to keep everything going. Then, the closest town's economy crashed (several plants closed) and the value of our home went down (also because we couldn't afford basis maintenance.) Then, the economic slump killed our business and therefore our income.

 

I know where we made our mistakes. We won't make those again, even though it means we will probably never own another house. In the future, we will only buy if we can pay 20% down and closing costs, have 3 months expenses in the bank, and the mortgage, taxes, and insurance will have to be 25% of net or less.

 

And, yes, we had a standard 30 year fixed low rate mortgage, but it took way too much of our income (about 45% at the start.)

 

ETA: I don't blame the TV, the bank, or anyone else for that matter. I should have told my mother no, but it was after a horrible summer of 100 degree temps in a trailer filled with flies and mice. If I would've has any sense, I would have realized that someone who can't afford to get the A/C hooked up definitely couldn't afford to build a house!:banghead:

Edited September 10, 2009 by Renee in FL

[ekarl2]

I worked for a mortgage broker as a marketing assistant about 3 years ago. When the laws were changed to have Fannie and Freddie "encourage" mortgages for low-income, low-credit score people, the other mortgage companies had to follow suit in order to compete. Without that government intervention, a lot of this mess wouldn't have happened. Banks don't like to lend to people who have a history of non-payment. They also don't like to lend to people who make no money. The free market would have done its job and kept those people from qualifying. They're too high a risk.

 

BUT ... if you have a government guarantee over those loans ... why not lend? There's no loss there for the bank. Sigh ... duh

 

What kills me is the congressmen who pushed so hard for those changes at Fannie and Freddie (people DESERVE the dream of home ownership) are the same people who are so angry about the sub-prime mess and are holding hearings to find out what happened. You caused it, guys!

[babysparkler]

I remember when we first started looking for a house to buy, our mortgage lender qualified us for much more than we thought we could handle, so we purchased a home in a lower bracket than we qualified for. I think many people just assume that if they "qualify" then they must be able to afford it.

[Jane]

I don't blame the banks or the mortgage folks. They were trying to make money. And they did. BIG money. Banking institutions made money, CEO's made money, the lender who got you to sign-on-the-dotted-line made money. That is what they do. These are capitalists, folks, and the more you borrow, the more they make.

 

Yes, but let's not forget that we're also all paying for the banks' poor investments in folks who cannot pay their mortgages through the bailout plan.

[Moni]

They were renting a small apartment before.

Buying a house on interest only payments, they get a nice neighborhood, enjoy nicer and larger home interior, nicer grounds, yard for the family dog, etc.

They get tax breaks.

 

If they can't afford it after several years, they walk away.

They would have just been paying rent anyway, no equity gained, no equity lost.

Back to the apartment.

 

;) Not a bad gig while it lasted?

[angela in ohio]

Yes, but let's not forget that we're also all paying for the banks' poor investments in folks who cannot pay their mortgages through the bailout plan.

 

That is an entirely separate problem. In general, those who believe that the banks are not responsible for people's poor choices also don't agree that the government should be bailing them out. ;)

[SheilaZ]

I remember when we first started looking for a house to buy, our mortgage lender qualified us for much more than we thought we could handle, so we purchased a home in a lower bracket than we qualified for. I think many people just assume that if they "qualify" then they must be able to afford it.

 

That's what we did also. I remember telling the real esate agent that there was no way we were going to spend the amount of money we were approved for.

We were military at the time and got a bit of flak for not buying a house that suited DH's rank. However, once we left the military, we were happy to have that low house payment.

Now we're back in the Army and we're once again getting razzed about living in a house that is "below our stature."

 

It doesn't bother me any. In the 10 years we've lived here, our house value has gone up 50K. And that price is supported by the market. Even if we had to sell the house at purchase price, we'd still have enough to cover the downpayment and CC's of a new house. Most of my military friends who wonder when we're going to buy a bigger house, are freaking out about having the sell thier own houses and cover those crazy mortgages that they signed up for.

[Orthodox6]

Some degree of backbone is needed when purchasing a house. Real estate agents "are NOT your friends". :) We have purchased three times now. Each time, we instructed the agent what our maximum price would be, and not to waste our time showing us anything that cost more.

 

I think I have posted before about the "sticker shock" of visiting California back in 1994, when dh was being pressured by a company which badly wanted to hire him. Our $117,000 Alabama house (2400 sq.f.) probably would have cost $500,000 or more.

 

The example of the berry pickers made me think of that. That family lives in a state with insane prices. I wonder what apartment prices would be for them !

[OnTheBrink]

EX and I bought a house in 2005. We qualified for 2x what we wanted to pay in a mortgage, but the lender told us, "I only want you to look at homes no more than X amount. You qualify for 2X, but you want lives, too. If you buy a home at 2X, the only thing you'll be able to do is pay your mortgage. Don't do that. Stay within these parameters (indicating our budget, which we had to create in order to get the first time buyer programs that we got) and you won't regret it."

 

And, we did that. And EX is glad we did. He got the house in the divorce and taxes went up. If we'd gotten a more expensive house, he'd have had to sell it with practically no equity in it at all.

 

I don't know about other first time buyer programs, but the ones we used required us to attend classes on budgeting, home maintenance, insurance, etc.

 

I think if you just use your head and don't get starry-eyed over a mansion on a hilltop, you can come out ok. (Barring any outside disasters, such as illness or loss of job, I mean).

[rafiki]

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[rafiki]

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[Rosy]

I worked for a mortgage broker as a marketing assistant about 3 years ago. When the laws were changed to have Fannie and Freddie "encourage" mortgages for low-income, low-credit score people, the other mortgage companies had to follow suit in order to compete. Without that government intervention, a lot of this mess wouldn't have happened. Banks don't like to lend to people who have a history of non-payment. They also don't like to lend to people who make no money. The free market would have done its job and kept those people from qualifying. They're too high a risk.

 

BUT ... if you have a government guarantee over those loans ... why not lend? There's no loss there for the bank. Sigh ... duh

 

What kills me is the congressmen who pushed so hard for those changes at Fannie and Freddie (people DESERVE the dream of home ownership) are the same people who are so angry about the sub-prime mess and are holding hearings to find out what happened. You caused it, guys!

 

This bears repeating.

 

A lot of people are encouraged to stretch when they buy a house, assuming that raises and bonuses will be there a year or two down the road and eventually their payments will be more comfortable. It's not a horrible idea if you're careful not to stretch too much and your job is stable. But stretching too much, combined with wages remaining flat or even decreasing--this is a bad combination, and it's what many people are dealing with.

 

Interest-only mortgages, however, are a different story altogether. This kind of shortsightedness means that someone was either willfully ignorant or deceived (or both).

[TraceyS/FL]

I think I have posted before about the "sticker shock" of visiting California back in 1994, when dh was being pressured by a company which badly wanted to hire him. Our $117,000 Alabama house (2400 sq.f.) probably would have cost $500,000 or more.

STBXH and I bought my parents house from them for under market value & them providing the down. That is the only reason i have no mortgage payment today - all that inflated equity we got to cash in on.

 

The example of the berry pickers made me think of that. That family lives in a state with insane prices. I wonder what apartment prices would be for them !

I just checked for you :D

 

2-3 bedroom in a not new/nice area (as in, unless it's changed - i wouldn't live there), 788sf, 1220sf - $1065 & $1465.

 

In something newer/nicer part of town: 1000-1300sf, $1400-1600.

 

And they bought that house for $110k in 94 (i think), and sold in 04 for the $305k.

[MarthaT]

I have really never understood it. We rented a small apartment when we were first married that we could easily afford, and our first house we way under bought so that we could live comfortably, our mortgage payment was actually less than what we paid in rent.

 

[Meriwether]

I don't blame the banks or the mortgage folks.

I blame consumers, pure and simple.

 

They see what they want. They go and get it. And then they bellyache that someone has raised their rates, cut their credit line, taken their stuff, etc, etc. I have a great sympathy for the folks who end up in financial straits because of job loss, illness, divorce, etc. But the ones who went out and bought whatever just because someone would loan them a buck?? Nope. Sorry. And I don't care that you drive a nicer car than mine. :D

QUOTE]

 

:iagree: But then, I'm big on personal responsibility.

 

When my husband and I were first married, we both worked. We knew we would be living off his salary when we had kids so after tithes, taxes and working expenses my salary was put on the house. It would have been fun to have decent vehicles, nice vacations, and dinners out, but we wanted to pay off as much of that starter home as possible. That money has been our downpayment money ever since.

[Jane]

That is an entirely separate problem. In general, those who believe that the banks are not responsible for people's poor choices also don't agree that the government should be bailing them out. ;)

 

I just think both were acting foolishly, as is our government. ;)

Edited September 10, 2009 by Jane

[TXMary2]

In a word: GREED.

[Mrs Mungo]

Once the bank sold off our mortgage we were notified that there was a negative balance in our escrow account and we had to pay an additional $800 PER MONTH to get caught up. :eek: We were lucky that we were able to do that.

 

This is similar to what happened to my friend who lives in California. They didn't have an adjustable mortgage. Their property value dropped tremendously which allowed the bank to tell them they had to hand over $60,000 to get rid of the negative balance or the bank would take their house. Their lawyer told them to walk away, that they'd be throwing good money after bad. She had an inheritance from her mom and they decided to use it to keep their home.

[lionfamily1999]

I was reading this article in the NY Times yesterday. And it was about people who had taken out interest only loans (mortgages) that were going to be resetting (the rate was going to change upwards significantly). Of course no one is going to be able to afford the new rate.

 

I just don't understand the sense of entitlement.

 

One couple profiled were school teachers from California with one child. I would love to live in their house also. But I probably couldn't afford it either. I wouldn't buy it in the first place.

 

They said they would not be able to afford it when the rate reset and they would probably have to walk away from it (foreclosure).

 

Don't people think about this when you buy the house?

 

What ever happened to saving to purchase your new house. Or living in an apartment until you can afford to buy your first home.

 

I have run out of sympathy for people who clearly got themselves into this mess with their eyes wide open.

Often, it's implied that the rates will never rise so high, or else, if they do then they will be able to refinance to a lower rate.

 

Dh has lived in our house for nearly 30 years. We inherited it. Because of rising costs, we're looking down the barrel of having to give up his childhood home. You're right, we didn't plan for this. I would have never imagined a day when our property taxes would leap up nearly 200%.

 

Sometimes, you think you have planned for the worst, only to find out the worst is far worse than you expected.

[PineFarmMom]

We can qualify for quite a bit more house than we have chosen. Actually, we could get over $100,000 more home than we have chosen. We've made some financial errors in judgment in the past and have chosen to live more simply than we used to and to enjoy not being "house broke". We have extra to take vacations and to put the kids in classes. If something bad happened, I believe we could keep up our mortgage. There's not a house out there that would be worth having no $$ left over at the end of the month or winding up going into foreclosure because we just couldn't afford it.

 

That said, I think the strongest of people probably often desire to have more than they have at different points. I, personally, can spend time with different family members who shop regularly at stuff mart to fill their big, beautiful homes, and it is difficult...I have to check myself mentally and remind myself of our goals. I wish I had an off-switch. ;) There is definitely entitlement, and there are probably many entities we could blame, but I suppose it all comes down to personal responsibility!!

[BigMamaBird]

Seven years ago, dh and I were looking to get a house. We went and got pre approved. The man said we approved for X% of our monthly take home pay to be used for house payments. It was about twice what we were comfortable wanting to spend. If we spent that much of our take home pay, exactly what were we supposed to eat, cat food and Ramen? So we told him, no, we were only wanting to spend half of X%. He began arguing with us and really putting on the high pressure. We walked out and bought a trailer which we could afford.

 

So, part of me says, of course, you are completely responsible for the decisions you make in life. But the other half of me says, we were young, just married, and pretty stupid. If it hadn't been for wise counsel from our parents, we would have eagerly bought into what the man was pressuring us to do.

 

I can see it from both sides.

[NoPlaceLikeHome]

I think most of us Americans suffer from wanting more, being discontent, wanting what someone else has, etc.

 

I know I sometimes get very frustrated because I want more house space, but I am thankful that we've had the wisdom to stay put, learn to be content, and not allow our lives to be consumed with a huge mortgage. We still have the smallest house of anyone we know.

 

If you cannot afford a house if the rate changes, you shouldn't be getting the house. I would never get anything but a fixed-rate mortgage.

 

I agree that people should be more financially responsible and frugal:).

 

However, the big banks should have also not have preyed on people by selling loans to them when they knew that they could not afford it. These banks also preyed on their stockholders and buyers of their re-packaged securities by acting irresponsibly in giving loans that they knew were bad. Many of these banks made these bad loans for their cut of the fees and turned around and sold these hot potato loans. I also think that many, not all, of the home buyers were truly misled by these brokers/banks. I think that the banks are more responsible for these bad loans since it was their business to know the inns and outs of loans and to know whether a prospective buyer could afford a loan. On the other hand, I also think consumers need to make themselves more aware of financial responsibility as well.

 

My 2 cents:)

[NoPlaceLikeHome]

Seven years ago, dh and I were looking to get a house. We went and got pre approved. The man said we approved for X% of our monthly take home pay to be used for house payments. It was about twice what we were comfortable wanting to spend. If we spent that much of our take home pay, exactly what were we supposed to eat, cat food and Ramen? So we told him, no, we were only wanting to spend half of X%. He began arguing with us and really putting on the high pressure. We walked out and bought a trailer which we could afford.

 

So, part of me says, of course, you are completely responsible for the decisions you make in life. But the other half of me says, we were young, just married, and pretty stupid. If it hadn't been for wise counsel from our parents, we would have eagerly bought into what the man was pressuring us to do.

 

I can see it from both sides.

 

He was probably arguing since he only cared about his cut of the take which would be larger if you take out a larger loan. This is why I think many people may have been misled due to the financial incentives to lie or pressure on the part of brokers, etc.