Danny
Oklahoma Health Insurance

I recently published an article on mortgage loans, tips on how to make them work for you and other forms of mortgage financials – here is a quote from it, in case you are interested:

Smell a Good Deal for a Real Estate – Try to discover a property that has already got some equity in it, when you purchase it. Equity represents the value of a real estate, a property after you have paid any mortgage or other charges relating to it.

Try to Get a Second Mortgage on the Real Estate – You could try to be more creative and ask the seller whether he would be willing to have a second mortgage on that home. Thus you could set up an agreement with the seller through which you will have to pay monthly an approximate sum of $200, for instance, on $15,000 of the price of the real estate (plus or including the interest rate), for the second mortgage.

Save Some Money to Pay in Advance – Some lenders might give you a full credit if you come with at least a small percentage of the sum. This would grant you supplementary points for getting the credit and would also lower the interest rate – e key point of any mortgage refinance program.

Don’t Give up, Go Further – don’t trust the first broker who tells you that there is no hope for you. You will finally find someone who could offer a viable solution, just keep asking and searching. An alternative is to apply online to mortgage services. Thus your application would be seen by more lenders and you might get more offers to analyze your solvency.

Improve Your Present Credit Score – by not applying to credit cards, auto loans or other loans, if possible. Too many inquiries would also affect credit scores. Another important thing you should do to improve your credit scores is to acquit your current duties and payments on time.

If you feel this help, please drop by my website for additional information, such as mortgage calculators or additional resources on mortgage loans.

Regards,

Michael

Do I feel sorry for young people who haven’t done their homework and paid a quarter of a million bucks for a cramped apartment, yes.

At the risk of being overly agreeable :-) let me say that there are a number of good points here and not necessarily contradictory.

I think what Stephen is saying is a good point. There’s a lot more behind the house buying orgy than is on the surface. I’m not suggesting that people shouldn’t wise up but as George Carlin says – “We’re only a few steps out of the jungle”.

We had a wild drop in the stock market at the end of the nineties in which a number of people lost their shirts and retirement funds. This was followed by 9-11 and an administration that went out of it’s way to scare the crap out of people. Its patriotic call? Go shop. I think there are a lot of people who would say that the Fed’s were handing out the equivalent of financial Ben & Jerry ice cream with rates where they were…..I think American’s are pretty brainwashed on some level about home ownership and cars. So, I’m not excusing it really just saying that I think there’s more to how people have gotten into the mess.

Let’s face it, not everyone has functioning BS detectors.

eleua said:
How many 30-somethings do you know that have $40K in liquid assets? How about $20K?

I think this is another side of the story that isn’t always calculated in. I know far too many people who own who are struggling with credit card problems. It’s not just the high mortgage payments or the lack of a real downpayment but the lifestyle that goes with that McMansion. It’s the need to drive (at higher gas prices) out to Home Despot for all the power tool goodies and home projects you’re going to do and on and on. You’re not going to drive a piece of crap to work every day right? And that home theatre system looks pretty good and is marked down %10 this week…..

I think people are spending wild money really and don’t even stop to see what’s going on at a basic level…..I don’t mean it in a condescending way, but I live a bit out of the mainstream in my values and it looks like a mess in a lot of cases when I think of the monthly outlay for people.

Also,a lot of twenty and thirty somethings are wildly in debt for college loans as well. Part of the conditioning for becoming adult home owners I suppose? On some level it’s the American way isn’t it?

Just some random thoughts really….

It’s very easy to simply believe that when people do something contrary to what you would do they must be stupid…

Tens of thousands of folks come to this website monthly digesting what others have to say. Many on this blog enjoy renting, others want to buy a house. Everyone wants a nice place to live. When folks buy houses they can’t afford it’s largely because of this not stupidity.

Does that mean I think it’s right that that corporate greed has milked this human weakness and allowed folks to lie their way into houses they can’t afford, no.

Do I feel sorry for young people who haven’t done their homework and paid a quarter of a million bucks for a cramped apartment, yes.

But in the end it’s seldom stupidity. Wishful thinking, maybe. Greed, some. Mostly it’s just biting off more than you can chew.

Me, I’m freaking brilliant, and I will only cool my heels so long in an apartment and then I will pay the going rate and buy a house. I’ll get a loan that works for me (that’s a fixed one in my case) and I won’t spend a lot of time mulling the market after I move in. I won’t mind if prices plummet short term (saves me taxes) but not so much I have to worry about the bank calling collateral.

Of course I hope to buy after prices drop but contray to some I don’t think there is some SMART time to do so. Now, six months, next year? Time will tell :-)

A house is not an investment, it’s your home…

Joe and Mary Buyzalot go about purchasing their home in the following manner:

#1 – how much money can we throw at purchasing a house every month?

#2 – what loan package will give us the biggest bang for the buck?

#3 – take the numbers from #1 and #2 and convert to purchase price.

#4 – call Cookie & Candi, the real estate Wondertwins, and say you are in the market for a house in the #3 + 15% range.

#5 – hope nothing bad happens

#6 – hope something good happens

The problem is that people are using the maximum amount they can afford per month, and assuming that their variable mortgage and 2nd mortgage (call a HELOC what it is) rates won’t increase. This is dumb because people are betting that interest rates won’t rise above historic lows, or that they’ll get a bump in pay that will cover it, or that they can refinance into a lower monthly payment, or that they can sell. When push comes to shove, none of these are viable options anymore.

With RE you are using monthly payment to determine the price of the house you can afford. Correct me if I’m wrong but most folks get pre-approved or at least pre-qualified in order to establish what they can afford and then start looking in that range.

To me that makes perfect sense and the way the majority of folks go about buying a house.

That’s is why we have a RE/credit bubble because folks could afford more with low rates so buyers could ask more and lenders stepped in with a ton of firewood to stoke the flames.

To close I completely agree that the monthly payment is the reason for the bubble but I don’t agree that folks are dumb to use the amount they can afford each month to determine the price of the house they should buy.

Many of these ARM loans are fixed for 10 yrs (I/O) so it reduces exposure to interest rate swings quite a bit. Additionally, 10 yrs out prior to 1st adjustment anniversary allows for a long period in which to potentially gain equity and ride out market swings. If the borrower does not pay down any principal in that period and/or job loss enters the fray, then perhaps it spells trouble. But that could also be said for 30 yr fixed borrowers.

He was originally looking at something in the $300K range, but after talking to a loan broker at Countrywide, he discovered he could afford mid $400’s due to the “other loans available”.

He’s 28. Recently married. Not a finance guy…

The folks selling these bundles of debt are making lots of money – and everyone wants in on the action, so all the banks/mortgage lenders are in a landgrab to find as many debtors as possible. It’s low risk to them when China and Japan keep buying the stuff.

And why do China and Japan do this? To make sure Americans have plenty of disposable income to buy their products.

This swerves right into a point I made almost a year ago on ClearcutBainbridge. If people are shopping a monthly payment (and they are), if interest rates go up, the amount of house they can afford really tanks. It is breathtaking to see just how much the price of a house goes down, as interest rates rise, with constant payments.

Factor out the “speculative premium” that people put toward “getting on the equity escalator”, and take out some more money for inflationary diversions in other areas of the family budget, you have a complete wipeout of just about all equity in the entire nation.

Given how banks will get religion, and not loan money to any stiff that crawls in the doorway, it is game over.

Just think…if banks required 20% down payment (and I’m talking a real down payment, not a piggy-back loan), and we have a universal equity wipe-out, just how much will a nice home cost?

How many 30-somethings do you know that have $40K in liquid assets? How about $20K?

Pretty creepy when you think about it…

Debt is for real, and it sucks.

I have a much bigger question than lending standards – till when does borrowed money hold this country afloat? Its like a pyramid scheme. Very interested in what happens down the road and how housing will handle the eventual bursting of the more ominous credit bubble.

Danny Ferguson
Oklahoma City Real Estate
Oklahoma Custom Home Builder

That said, before someone comes along with the inevitable straw-man argument that home buying is nothing like buying a car (which it isn’t), realize that home financing is very much like financing a car purchase — under-handed (or naive) seller’s agents can manipulate your perception of price, so long as they’re allowed to play with payment terms at the time of price neogtiation.

The question I’ve had for quite a while is this: why have lending standards tanked? Why is it even possible for lenders to be making 50-year mortgages to everyone who can fog a mirror? What changed that allowed this financial hindenberg to inflate?