Thursday, February 14, 2008

the news, mortgages and money...

I was watching the new the other day...I try to watch the local news from 6-7am and then I watch Good Morning America for as long as I can before I have to leave for work. They have been focusing on money and finances for the last month, especially since it is tax season and all.

I think it wa Tuesday or someday close to that, they did a huge whole story about the mortgage crisis going on in this country right now. They talked about the possibility of a new government program that would help the homeowner and the mortgage lenders get out of tough situations where because of the adjustable rates, the homeowner can no longer afford to make their house payments. I used to think that the bank still won when they foreclosed on a house, but in the end...they don't. I mean, they don't lose out as much as the homeowner, but they definitely take a hit.

So, what is this whole mortgage crisis about? Well, mainly is has been about banks letting people loan way more money to buy a home than they can really afford. It's a tough spot though because of the increase in the cost of homes. Many times, the normal income doesn't qualify for what the normal house is in many neighborhoods. I know it makes me personally nervous. If I went to a bank today and asked to be pre-approved to buy a home...there aren't any decent homes in this area for less than $100,000. In reality, on my one income...that is too expensive for me. They say that you should not spend more on your monthly mortgage payment than 1/3 of your total take home income. So, I would end up spending more than what I SHOULD be. Now, I am pretty financially responsible, so I would never sign up for more than I could afford, but's pretty daunting.

These adjustable rate mortgages (ARM) are the real kicker that is getting people now a days. The homeowner gets into a loan for more than they can afford...and gets a 30 year mortgage. The kicker is that it isn't a fixed rate, it's a variable one. Well, the first 5 years is a fixed, low rate, but when those 5 years are turns into a variable one. That is great...except when that rate hikes up, the homeowners can no longer pay and risk going into foreclosure.

And you wonder why the idea of buying a house is completely terrifying to me. I mean, I should be doing it because I am not getting any younger and instead of wasting money on rent, I should be spending it on equity in a home. Aurghh!

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