I feel like it’s my duty, as a real estate broker and as an American, to help people.
Let me be the first one to tell you: Not everyone should buy a home.
Some people should rent. These people are called “renters”.
People who should rent are those that, for example, 1) plan on moving within the next five years; 2) people who have no steady income; 3) people who can’t afford to pay a mortgage loan payment on a mortgage loan they shouldn’t have taken out in the first place; 4) people who spend more money each month then they make in salary; 5) people who don’t realize that credit card debt has to be repaid, at some point; 6) people who don’t realize that mortgage loans have to be repaid, at some point.
Oh, and, apparently, people who “don’t listen” or are “not good with words”.
Patrick Fultz and Laurel Swartz, with no savings and about $20,000 in credit-card debt shopped for a mortgage loan to buy a home last year.
“You basically had to be Scot free, no massive credit debt, which we had, and to have money in the bank, which we didn’t,” said Swartz, 31. “How do people buy houses in America anymore?”
Although they had very little income, high credit-card debt, and bad credit scores, they continue to pursue their “dream” of owning their own home.
They eventually found a lender.
You know where this is going.
Turns out, their first loan had a “negative-amortization” option. This allows (but does not force) a borrower the option to pay less than the full monthly mortgage loan payment. The amount that isn’t paid is rolled over into the loan balance.
You end up owing more on your loan, every month you take this option.
Fultz makes $12.75 a hour driving a fish-food delivery truck. He recently paid off half of the 12 credit cards he used in buying a motorcycle, a couch and a television, going out to eat, “just buying stuff,” Fultz said. “I had no idea this credit-card debt was going to have such huge repercussions.”
Swartz was working at an insurance office, where she made $11.75 an hour.
They did okay at first, paying their two loans, even though the first one was variable rate and the second one was at 12.5%. (Based on my estimate, they brought in around $3,900 per month, gross, $2,700 net, and had a total monthly loan payment of $1,900.)
They did okay until Laurel Schwartz decided to quit her job and take a lower-paying one, making $7.89 per hour.
Then, their first loan reset (although by a small amount – from 7.06% to 8.15%) (a difference of $140 per month, or, maybe coincidently, about how much less Laurel starting making, each week).
Suddenly, the story goes, “the couple was $300 short paying their bills each month.”
(Funny how that happens when you reduce your income voluntarily by $640 per month.)
“I had no idea the interest was going to climb like it is they didn’t tell us that at all,” Fultz insisted. “Maybe I wasn’t listening. Maybe I’m not good at words. Negative amortization? I never even heard of that.”
Their lender offers no apologies.
“We didn’t do anything wrong,” Mills said of her firm. “She quit her job and now they can’t make their payments. Well, I didn’t make mine this month, either. How do you help someone like that? I wish I could help myself.”
Er, not the best line of defense!
What a mess!
Borrower, beware: Debt disaster looms as rates rise on easy-money mortgages – By Lynda V. Mapes, The Seattle Times
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