This site in the Free Knitting Patterns Netring is owned by Sockbug.
[ Previous | Next | Next 5 Sites | Random Site | List Sites | Join ]
| |||||||
How The Sub-Prime Debacle is Affecting Me, a Cautionary Tale With Math
So, you would think if we got an offer on our home we'd be jumping up and down, right? Well not quite yet. We purchased this house 1.5 years ago for $449,000. This was exactly the same amount of money that the sellers had paid for it in 1994, so this house wasn't a victim...beneficiary (?) of the housing bubble. Undoubtedly, we overpaid, but we were tired of looking and it had just come on the market, so the seller wasn't much into negotiating. I won't include the amount of money we have spent on it already in these calculations.
We made a substantial amount of money on the home we just left, as we had bought it as a foreclosure and put our hearts and souls into the remodel. As a result of the money we made, we were able to put $100K down on this house.
So the math so far is:
$449,000
-100,000
$349,000 Amount financed.
Since we have been here such a short time, we still owe $343,000 on the loan.
The offer we received was $375,000. If we sell for this amount of money, after we pay closing costs, we will net about $348,000.
New math:
$348,000
-343,000
$ 5,000 This is the amount of money we will have to put into a new home.
Now, here's where the sub-prime debacle comes in. Right at the moment, Howdy and I are making $47,000/year gross. (273% of the 2007 Poverty Guidelines for three persons, BTW) Ordinarily, with our good credit, we could qualify for a 100% loan, so the amount for a down payment would be a moot point. Now, since the lending restrictions are tightened, even our good credit won't help, as there are no more 100% loans. We are forced to put a down payment, preferably 20%.
We have counter offered $430,000. This will put our net at about $400,000. Sounds great, right?
$400,000
-343,000
$ 57,000
So then you can assume that if I use this as a 20% down payment, I can afford to finance $285,000. (57000/.2)
Not so fast. The rules have changed that way, too. You have to spend less than 41% of your total income on debt. This includes car payments, charge cards, student loans, whatever.
amount of new payment + $975 (current car payments) / $3,916 (monthly gross income) = 41%
If you solve this, our monthly payment can be no more than $630.56. This includes escrowing insurance and taxes. Not much to be allowed to spend.
Conversely, if I plug my numbers into this calculator, with 6.25% interest over 30 years, I can afford a house of $106,232.46 with my down payment of $50,000! Doesn't sound very appealing to me.
We thought maybe we'd just rent a home for a few months and after Howdy gets started in his new business and there's some money coming in, we can buy a home then. The rules have changed there, too. Used to be, they'd do something called a "no doc" loan for someone who couldn't substantiate their income. Obviously, this was a place where fraud was bound to occur, so they no longer do those loans. Now, if you are self-employed, or even draw income from a place that you own more than 25% of, you have to show your income with 2 years of tax returns. So, if Howdy starts work at this new job as he is slated to this year, we do not have enough documentation to qualify for a loan until our 2009 taxes are filed, in April of 2010.
This puts is in an interesting position. Ordinarily, we'd be happy about any offer on the house, but unless we can come up with 20% down, we are basically screwed. Even if we get a greater offer later, once Howdy is self-employed, we are ineligible to purchase a home until 2010.
So, as I drive around neighborhoods in my area and marvel at the number of for sale signs, I can't help but wonder who is going to buy all of these homes once we have finally hit bottom. We have excellent credit and possibly the ability to put 20% down and still might get turned down. My realtor has told me there are 2,000 new foreclosures in Houston every month, and we are one of the least affected areas of the country. I can't imagine how it is other places. How did this happen? Surely it isn't all fraud.
In a related story, an acquaintance of mine is fairly wealthy. He lives in a tiny gated community. We happened to be travelling in his car (brand new Mercedes) and the radio (CNBC on Sirius satellite, of course) was talking about the sub-prime crisis. He had the gall to tell me he thought the whole thing was an invention of the media and ask my opinion. Since I knew he would continue living in his little bubble no matter what I said, I asked him about his car.
We have not received any word on our counter offer. Ever optimistic, the residents Chez Sockbug will be going out to look at homes to buy tomorrow. If you have read this far, send mojo with dollar signs, please. Oh yeah, and forgot to mention, they want to close in THREE WEEKS. Oh, the fun we're having here!
Wow, this was more informative than any article I've read about the
sub-prime crisis in the NY Times. Good luck - I'll keep my fingers
crossed.
Sounds like you are in an awful quandry....although I must admit, I find it
hard to read your posts as they run into the little "socks" and other items
on your side bar. So the math somewhat escapes me as the formulas aren't
clear. It still sounds like a hell of a mess as my Dad would say!! Keeping
fingers crossed.
Ack! That so sucks... Financing mojo coming your way immediately!! What
about your own bank or credit union? Couldn't they cut you a better deal??
(I am no financial expert, though, as anyone who knows me casn tell you!
;-) )
ohhh, the numbers in your post make my head hurt. i am also in the process
of "looking" at homes to purchase, and it is so confusing and expensive and
i hate it! i don't understand how americans can afford to buy houses at
all! sigh....best of luck to you!
The numbers you post make me hurt, too, but for slightly different reasons.
Your current income in relation to the house and car payments make me hurt.
Especially those car payments. ACK! If the house is the priority, I'd be
looking to get out from under the car payments and get a couple of older,
but usable, used cars for cash. That would help your ratios tremendously.
Hmmm, maybe you could rent for a while, invest what money you did make on
the sale and wait for the people trying to sell to get desperate in a few
years when there is no-one to buy? I know what you mean about the whole
self-employed income crap. I have run afoul of htat too and it is a real
PITA!
YAY for St. Joseph!! He worked for us as well, twice. I agree with
Carol. Get out from under those car payments, rent and save the money for
a short time (year? two?) and pay cash for your next house. I think the
majority of people still live under the belief that we have to owe people
(car payments, mortgages, etc). Not true. And it is not the 'rich' who
live owing nothing.
The car numbers are for my leased car that we leased back when part of
Howdy's compensation was a company vehicle. ($629/mo Payoff $30K) When he
gave back his company car, we bought him a used Honda for $346/mo.
It's definitely not all fraud. I think back when they were handing out
house loans like candy, lots of people got into mortgages they really
couldn't afford. It sometimes takes a few years for that to start building
up on you, and then, all they can think of to do is walk away from the
house, and let it go back to the bank. There are also some sorts of lenders
out there that are doing interest only, type payment plans, or they were.
Sounds like another catastrophe waiting to happen, though.
One question, though. You can counter offer on a house you are selling? I'm
confused?
Hi. I stumbled on your blog via another blog. I must say, I stuck around
happily reading yours. I kind of skipped right past this post cuz I felt
funny reading a post regarding money and house finances regarding someone I
don't know. I felt like I was eaves dropping on the adults in the kitchen
havng "tea and bisquits". My mother always chastized me for that saying its
rude and that It falls under those catagories of burping in public, passing
gas loudly in church and blaming it on your tot or picking your snout while
driving :) soooooooooooooo I moved on but I will be back and snooping
through more of your posts:) if that's okie dokie with you:) Pretty sock
patterns by the way!