Answer: Please also take into consideration things like saving for retirement, building up a nest egg, etc. Treat them as if they were “debt.” (You may not owe it to the credit card co., but you “owe” it to yourself!)

We bought our first house ~4 years ago. We had no other debt, and our jaws dropped to the floor when we were told we qualified for DOUBLE what we felt we could afford. Later we got to thinking that they didn’t take into consideration that fact that my husband puts in $2000/year in an IRA, I put in 12% of my income in a 401(k), 5% of my income in co. stock, we tithe 10% to our church, and invest a couple hundred monthly for short/mid-term goals. When we totalled all this stuff up and treated it as if it were DEBT, it was the difference between what the bank told us we could “afford” and our original figure of what we felt comfortable with.

We went with the lower figure, and even had to argue with the loan officer at the bank who told us we wouldn’t be happy in an “inexpensive” house (average price for our area, the type we had both grown up in) and that we were foolish for doing this, and would change our minds when we went house-hunting.

It’s been 4 years, and I have NEVER felt foolish for getting the cheaper house/loan. It’s one of the wisest decisions we made. Since that time we have had a child, purchased a new car, continue to watch our nest-egg build, and we remain DEBT-FREE.

Moral of the story: You know yourself and your finances better than that yahoo at the bank. Do not take a huge mortgage just because the bank says you can afford it. If that’s your #1 priority, fine, but if you have other priorities, make sure you have enough flexibility in your budget for them, too.

YMMV, of course.

We are currently living in a double that we purchased 5 years ago. Similar homes in the neighborhood have been going for about $65K recently, but we got it for about $40k because it needed repairs. We got a 10 year loan, and I pay about $30 more than required each month, for $370 a month. We currently still owe about $11K on it, and would have it paid off in about 4 years.

However, situations have changed. Not only did my wife find out she was pregnant with our third child recently, but our other two children are getting ready to enter school. My oldest son is 5, and I’ll be putting him in a part-time private preschool soon. The schools in our city are fairly poor – evaluated as a D. We just figured we would be moved out long before the kids would be getting to school.

Anyway, to make a long story short, we bought this place instead of something closer to our “dream home” because it seemed like a good long term choice for income. However, now I need to put my wife’s desires for a larger yard, and our desire for a better school system at the forefront.

She is due in February, so this means that if we are going to get moved, we should really do it by December, so we have a 4 month time frame. However, I’m not at all sure how to begin. I’m pretty sure that a bank wouldn’t give us a second mortgage at this point – we make about $40k a year, and this place is eating most of it up.

I believe that perhaps the smartest thing for us to do would be to refinance our mortgage for a larger amount, and for 20 or 30 years instead of the 10 we got. This would both give us $ to replace the furnaces and get both sides into final rentable condition fast, as well as give us some $ for moving, and maybe even for down payment.

Complicating things is the fact that my sister has been living on the other side of the double for nearly 2.5 years. She has been a big help with the kids, but we haven’t been charging her much of anything to live there. I went over and talked to her about various possibilities, and that if we refinanced, we would need to get a lot more rent coming in sooner rather than later. So I mentioned that she might need to move. This is not the first time I’ve brought this up – I’ve mentioned it at least a couple of times since late last year. Her job would never give her enough $ to pay a higher rent. I was rather taken aback when she said, rather forcefully, “I can’t afford the higher rents around here. I WON’T be going anywhere for at least another year.” I have also heard her talking a lot recently on the phone about redecorating her side of the double, so I now am starting to think that she thinks of it as her place, and for some reason she seems to think that she has some sort of long term right to stay there.

So as you can see, this is a delicate situation. I’m not sure what the best way to proceed is on a financial front. Should we approach several banks and credit unions about refinancing our home for a longer term, to free up monthly payment $ and to give us some $ to work with right now?

Regarding my sister, she has been renting for about $160 a month – roughly $250 to $280 less than a 3 bedroom 1,300 square foot would rent for in our area. However, when she started renting, the place needed a totally redone kitchen, bathroom, the works. Nobody else would have probably rented there for much of anything. Now we have a lot more time and money in it. Since it has been 5 years now since we bought the place, and we are thinking of moving, we really need to start having the place pay for itself.

We could probably go up to another 12 months without having her side bring in its full potential, but I’m not sure how best to handle this situation without it ruining our relationship. Considering her reaction to my idea of her moving, should we somehow give her notice in writing now – sooner rather than later? We really appreciate her help with the kids over the last couple of years, and we value our relationship with her, but I don’t want this to turn into some sort of thing where she acts like we never asked her to move, and doesn’t take it seriously.

If you were in this situation, how would you proceed:

A) with my sister, who says she does not intend to move any time soon, and has ignored hints over the past year that she should be looking into other housing arrangements? (at one point she said something about taking a roommate if we increased rents, but now says that isn’t likely)

&

B) with the financial situation – how can we do things in the right order, and the right way, so that we can upgrade to new furnaces, fix the last few things around here that need fixing, and also get moved by the end of the year?

Answer: No one can answer this but you (or someone with intimate knowledge of your family circumstances).

Just what do you owe your sister? Did she pay for any of the needed repairs you mentioned? If not, did she provide free labor for any of said repairs? If so, she may see herself as having equity in the property, even if you see it as her only deserved benefit was the cut rate rent.

Or has she done something unrelated for you that left you owing her big?

If none of the above applies, you have to decide if you want to be a doormat for mooching relatives, or are you willing to be a man and assert yourself and let the chips fall where they may. I don’t think it is a good idea to go further in debt to fix the place before you sell. You’ll pay dear for the refinance. I suspect that you could pay for at least one new furnace with the closing costs of refinancing alone. It might be better to let the new owners pick and install the new furnaces. You’ll have to provide a price allowance for that and other needed repairs, of course.

Or you could make the needed repairs and avoid refinancing by increasing your income. You could do that by working lots of overtime, if it is available, at your current job. If you can’t do that, you could get a part time job.

By the way, aren’t you the same poster that recently said you put 30 grand in some stock? If so, why are you acting like you have no resources for necessary home maintenance?

Answer: Plenty are vulnerable to spivs and con men that tell them that they will be able to refinance at the same derisory interest rates when the interest rate is about to go thru the roof when the spivs and con men are only interested in securitizing the loans so they can get stinking rich on the commissions and dont have to worry about what happens if the market tanks and the suckers get stuck with the original loan and cant refinance it before the interest rate goes thru the roof.

> I have 5% down, good solid income, and I can afford the mortage > payments…

> Has anyone been through this before that would care to shed some light > on this for me? Is there another way around this? Is this lender > specific?

> Thanks for your comments!

Answer: We had a similar problem. A while back we went through credit counseling. We needed to trade in our car for a van. We got the loan but at a very high interest rate. We were told it was because the credit report listed some of our loans as going through the credit counseling. I guess according to them it meant that we could be a risk for filing bankruptcy, not paying, or if we couldn’t afford to pay those monthly loan payments how could we possibly afford another loan payment. The credit counseling did help though, we got all of those loans paid off in 2 years instead of 15, and they saved us almost $300/month. Once those loans were paid off, that negative remark on our credit reports was removed, (some needed a call to get it removed, but they were all removed). We did not need to wait years for the credit to be repaired, just months, because we traded in that van for another van at a very low interest rate, and since have been able to refinance our mortgage at very low interest rate.

> Most of these families are living on the edge. The market has killed > many. There are numerious for sale signs. Some have been forced to > downgrade to smaller homes. $4000/month morgage payments are not uncommon.

> I have a friend who is an commercial pilot, currently fearing for his job. > He told me that he could not afford to be out of work for a single > month or he would lose everything.

> Life in the Fast Lane.

Answer: Wow, that’s a pretty scary way of doing it. I would have to assume that there are quite a few people making that mistake though. When realtors are telling us that we can qualify for 2 1/2 times our yearly salary on a home loan, it seems like that would be pushing the limit for many. Especially when they add in the new cars that are usually part of the “look at me” show.

Joe

Answer: My son has a Washington Mutual home loan (I do too, for a rental property we own but we handle our own escrow account). We heard complaints about WaMu playing fast and lose with the escrow accounts. My son has heard rumors to that effect also.

The bank said they advised that they take an in-house loan at 5.75% locked in for 3 years and get the 2 offending items removed from their credit score to pull up their score and then re-apply for a loan in 6 months (please read other post on this group or read below for details on the credit report issue).

She said she could get them in the house for not much more than their 1st year’s insurance payment which is appealing to them as they just had a new baby and their savings are tapped out. Although, I think that if they could find a better lock in rate, they could manage to scrape up money to pay some points if necessary.

My question is that in this time of rising rates, is this really a good way to proceed? At the rate Greenspan is raising rates, they could be looking at a 10% environment by the time they can reapply!

Would it be better for them to lock in for the 30 years at 7.75% and keep shopping or get the 5.75 and wait 6 months to reapply?

Can anyone say how much the $600 in problem accounts on a credit report effects the overall score? Suggestions?

I am reposting the credit report issue that I posted under another thread below:

As I mentioned in another related post our oldest son is in the process of getting a home mortgage loan and had an account of $130 pop up from 1998 that he was not aware of. His wife had a $196 account that she was aware of, but thought had been taken care of from 4 years ago! The loan officer told them that even if they got the accounts taken care of tomorrow that the items would not be removed from the credit reports for six months or either they would not reflect on their credit score for six months! Apparently, there must be six months of bills paid on time to have any effect on your credit score. In this case, IMHO neither account should have been figured into their score as the $130 amount was from someone else charging to son’s account illegally and the $196 account was from DIL’s ex-husband not paying a bill that he was ordered by the court to pay in their divorce. Please see my separate post for more on this and some questions that I hope someone can help with. Thanks.

Answer: You forgot to mention how much the total closing costs are and the cost of the home. They will be paying closing costs twice. That extra $2K or $3K is expensive.

Personally, I can’t imagine going into home ownership with a tapped out savings account. Unless there is an upcoming bump in income, it seems like a recipe for disaster. Almost every home has unexpected problems or required repairs.

Answer: Used my credit card to pay for the rings, yes, but that was nearly a year ago. (Yeah, this wedding’s been in the works for a *long* time.) Haven’t gone for joint anything yet, except for the joint checking account that we’ve had since we moved in together three years ago.

> Unfortunately, those are the chances you take. Most banks will tie the > rate to their prime lending rate, which is itself tied to something like > T-bills. I wouldn’t consider any loan agreement where this was not the > case.

> I had a adjustable rate car loan, which started off about 2 1/2% lower > than a fixed rate loan. In addition, there was a free payment at the > end. I wound up averaging about 3 3/4% rather than the 9% I would have > paid on a fixed rate loan. But I guessed right, and rates went down > shortly after I made the loan, and didn’t rise again until I had only 3 > payments left.

> If you guess wrong, and rates rise too much too soon, it can cost you. > This decision depends a lot on how much risk you’re willing to take.

> It’s not the wrong decision for everyone.

Answer: Car loans are so short term and for such a “small” (comparativly) amount, even a large increase won’t hurt so much as a 30 year loan for over $100,000.

Example. $100,000 30 year loan at 6.8% = 651.84 a month $100,000…………..at 7.3% = 685.47 a month $100,000……………..7.8% = 719.79 a month Just a 1% increase puts a crimp in a frugal budget. When the FEDS let interest rate go higher—–watch out.

Home loan interest rate are currently below 7%. Do any of you who have ARMs have payments that went way down? They should have.

Other cirucumstance than the ARM cost us our house, but that increase of of almost $400 a month sure didn’t help.

Answer: While you are paying extra payments on a 30-year, you are still paying a much bigger chunk of your monthly payment to interest.

I had a 15-year on my former cottage. The monthly payment difference between a 15-year and a 30-year was $100/month more for the shorter loan. The percentage going to interest was signficantly different. You can make extra payments to principal, but you’re still paying a lot more each month in interest and a lot less to principal in your regular payment

I just refinanced my new house from a 30 year to a 25 year (and from 7.3% to 5.375%). The interest rate would have been the same, 5.37%, for a 30-year, 25-year, or 20-year. I couldn’t afford a shorter term than 25 years, but each shorter term had a different proportion of payment going to principal each month.