My First House

So, apparently anyone can get a mortgage, even if they can't afford it.

Has anyone watched this TLC show "My First House?"

My wife has it on right now. The couple, with three kids, got approved for a $150,000 mortgage but "had trouble coming up with a $4,500 down payment."

If you can't afford a $4,500 (that's three percent) down payment, you can't afford a house.

 

It's called a FHA loan.

 

When Mrs. Scicluna and I bought our house, we didn't have a problem with the $3,000+ downpayment. Our problem was the closing costs. Our lawyer (who really sucked), didn't tell us about all the extra fees on top of the good-faith estimate that we received. I'm still convinced, , more than five years later, that we got screwed out of several thousands of dollars.

 

Does anyone on here have an ARM? If so, explain something to me:

I keep reading about these people behind in their payments and/or facing foreclosure because the rate adjusted.

Well, of course the rate adjusted off the teaser . . . but rates are still ridiculously and historically LOW.

Are people really behind and losing their homes because of an interest rate that is 6-7%.

What am I missing here? ARM is tied to a benchmark (like COFI, which is 3-4%), and then a 2-3% margin is added.

Have rates on ARMs really become exhorbitant? Or are they just exhorbitant compared to the teaser . . . which no one should base their ability to buy a house on?

If people were approved for loans who simply couldn't afford a house, I can understand that (although it's still unacceptable not to know what you can afford based on worst-case scenarios). But all these "my rate adjusted!" stories make me scratch my head.

 

Early on, your mortgage payment is probably something like 90% interest and only 10% principal. So whenever the rate adjusts, your monthly installment adjusts greatly (either up or down).

The problem is, people were getting a 2-year teaser rate they could afford, not realizing they couldn't afford the payment when the 28-year part kicks in. So they walk away from the house. Of course it's the buyer's fault for buying too much house and not understanding the terms. Multiply that by a million foreclosures and we have a problem.

I think more people are aware of this situation today and are more judicious about mortgage terms. In fact, I think the 2-28 mortgages are now banned.

 

The No. 1 reason for the current foreclosure crisis is that too many people have been willing to sign their names to mortgages they can't afford. I've been approved for mortgages before that were way out of my range. But going in I had a set amount I could afford and wouldn't take on a mortgage that exceeded that amount. I'm not letting the liberal (not a political term) lenders off the hook for their role, but come on people, have a little fiscal responsibility.

 

Depends. Some people weren't thinking more than a few years ahead, and didn't budget, even though the interests rates were low.

Others had a life problem happen to them (health-related, lost a job), and missed a payment. The interest rate then spiked to ridiculous highs (like 15 percent).

But yeah, I see your point. My interest rate is 7.5 percent for 30 years. The couple of times I sought to refinance, all the lenders kept wanting me to consolidate all my bills into one (credit cards, home equity, etc.). I refused, because I don't want to end up missing a credit card payment, and have it affect my house.

 

How can a rate spike to 15 percent when the benchmarks to which it is tied are still near historical lows?

If this is actually the case for someone---and I seriously doubt it is---that person should have been declared brain dead long before he ever put his name on the dotted line.

 

ARMs weren't really the problems -- for the most part. Many are protected by large percentage jumps. And, most ARMs are fixed for three or five years. Where home buyers and lenders ran intro trouble were the sub-prime loans. When homes were no longer worth what they were, no equity in the home, and a rate adjustment, the occupier of the home in many cases walked away.

 

When we were first looking, the two things lenders said to us when they were trying to sucker us into an ARM were that when the rate changed after 3 or 5 years, that we could a) refinance or b) "by that time, you'll be ready for a bigger house anyway!"

We had multiple prospective lenders hit on those themes.

No one foresaw the housing market collapse.

Pleased to say that I didn't buy into any of it, set a strict limit on how much we would spend - far lower than what we were approved for - and did a 30-year fixed mortgage. My only regret is not doing a 15-year one.

 

47 months left on my 10-year fixed mortgage (5.25%).

Best decision I ever made.