I read a great article in the local paper here about a couple that has found themselves in a high stress situation. They simply can’t afford their home. They have an 80% value mortgage and a 20% “extra” loan for their home. Due to their credit card debt, they couldn’t get a standard mortgage so they found someone that offered a solution for them.
House price: $246,800
Their main loan: 80% @ variable rate interest adjusting monthly
Secon loan: 20% @ 12.5% interest
Income (Him): $12.75 per hour
Income (Her): $11.75 (and then reduced to $7.89 when she quit her job)
Credit Card Debt: $20,000
Savings: $0
These people shouldn’t have bought a house. They shouldn’t have qualified (which they didn’t through traditional means). Unfortunately, they found someone that got them in the house at all costs. Now, due to their poor decision making, they are really in a bind and will most likely lose their house as the payments adjust up each month.
Here’s what I think they should have done:
-Made the commitment to buy a house
-Paid off all credit card debt
-Set up an emergency fund
-Stayed in their current jobs to maintain their income
Had they simply done these things, they would have qualified for a traditional mortgage without all of these terms that pretty much guaranteed they would fail. They also would have positioned themselves much better financially so that they could handle a bump in the road. Well, they didn’t do that and now are working on becoming yet another statistic in this home mortgage melt down.
Check out the article here:
http://seattletimes.nwsource.com/html/localnews/2003696532_loan07.html