Squeaking By

As former residents of Adams county, STK and I are all too familiar with the stories highlighted in this article. The major difference is that our almost foreclosure--thank goodness we dodged that fate with our credit fully intact--was the result of a move and not a result of borrowing beyond our means. I will say this, however; lenders have a very distorted view of what constitutes a tight budget. As the article points out:

The problem now, experts say, is that too many working-class families take on crippling debt loads to seize their piece of the American dream. They overpay for starter homes. They take on extreme mortgage rates to avoid making a down payment with money they don't have.

"If you have a job and breath in your body, a builder will put you into a new home," said Jan Buckner, who invests in foreclosure properties in Colorado.

When STK and I approached our bank about purchasing a home in our current village of residence, I was astonished by how much they were willing to finance. Had we financed a mortgage before STK landed her new teaching gig, we would have had $500 left each month after paying all our bills. While $500 sounds like a lot, it goes very quickly when you're purchasing diapers and other miscellaneous baby stuff, pet supplies, food, and any incidental medical bills. I looked at our lender and said, "You're kidding, right? Tell me people don't actually live like this." Her response: "Oh, some people cut it more closely than that." Yikes! When you think it about, though, it makes perfect sense. A mortgage loan entails almost no risk to a lender; if you don't pay, they take your house and resell it. Not only did they collect on the payments/closing costs/etc. of the first buyer, they get to do it all over again. Yes, it's a legal hassle for the lender to go through the proceedings, but they really don't lose any money on the deal. The lender can't lose.

There's something to be said about an industry that operates with this business ethic, I suppose. Ultimately, however, the real responsibility rests with the buyer. Before applying for our current mortgage, I did something I've never done before: I put together a budget spreadsheet. I included everything--housing costs, utilities, cable, student loans, transportation, medical expenses, potential vet bills, daycare--and figured out exactly how much money we spend during a typical month. I then calculated how much we spend during a worst case scenario month, a month with unusual medical expenses, trips to the vet, etc. And that's the number I used to calculate how much we could realistically afford in terms of a mortgage. Plan for the worst, hope for the best.