Home Buyer Beware of Un-Affordable Home Loans

by Debbie from Idaho

Ask Kate what to do about un-affordable home loans: Home buyer beware! Debbie's frustrations are building with the real estate process. Their home buying decisions have already pushed their budget too high and they are just starting out. Because she is in disagreement, her husband and the real estate agent are moving forward without consulting her.


Yet the monthly house payments are maxed-out and there is no wiggle room left in their budget. This is not the affordable way to get a home loan!

Meet Debbie... Kate, I totally feel like we are getting the run around! We have less than great credit scores and never thought we could buy a house. As it turns out, our score is high enough to get an FHA mortgage with an interest rate of 3.5% (as of 2 weeks ago).

The Realtor we met convinced my husband we should build (he has a little development). But I am fine with a home that's been foreclosed and a refurbish loan.

We have gone from a budget of $150 max to 172K! Our loan is on hold, our interest rate lock is on hold, and the builders seem to think they are doing us a favor, so everything is done on their time schedule.

I am SO unhappy with this process. They have cashed our earnest money check, but have made no effort to contact us. The Realtor prefers to call my husband at work, because he knows I am not happy.

I would rather lock-in and have the rates go down a bit more than get stuck with some whopping interest that makes it impossible for us to pay. As it is, we will be totally maxed out with these payments... No squeeze room at all.

Can you please talk some sense into my husband? Thanks.

Kate Answers: Home Buyer Beware of Un-Affordable Home Loans

***zz-portrait-left.shtml*** Dear Debbie,

If you only remember these these two tips, you will be on your way to successful homeownership:

1. Do not depend on lenders to know how much you can afford in a mortgage payment.

2. No one cares more about your mortgage than you.

Why do I say this?

Home Buyer Beware of The Un-Affordable Home Loan

It wasn't too many years ago that real estate prices were climbing at an alarming rate. Multiple offers from panicked home buyers incentivized sellers to raise prices. Home buyers needed larger mortgages and lenders accommodated the real estate market by lowering qualifying standards.

You might remember what came next. The price of homes can only go so high before tumbling in the next real estate cycle. The most recent decline around 2006 was like musical chairs. When the music stopped, Joe the Homeowner had no where to sit. Adding insult to injury, he was also blamed in the media for buying too much house and not paying attention to what he could afford.

Sadly, these struggling homeowners are left trying to dig themselves out of the unaffordable mortgage hole.

First Time Home Buyers and Mortgage Affordability

The primary job of a lender is to qualify a home buyer for a mortgage. But just because you have been qualified for a certain loan amount does NOT mean you can afford the monthly house payments.

Why? There is no possible way your lender can know the complete details of your life. The loan process is also set up to address certain parameters of your financial life but ignore major ones like preparing for retirement. Go to How Much Can I Afford in a Mortgage to learn more about looking out for your financial well-being.

I understand from your letter that you are not on the fence over locking your mortgage rate. But do you need to convince your husband that mortgage rates not only trend downward?

Everyone likes to catch interest rates at the bottom of the market. But few do! Start with The Mortgage Rate Lock Guarantee and continue through my series by following the links on the page.

Anyone still not convinced that rate locks are an area in mortgage lending to take seriously? Buyer Beware! Look at the number of requests for help that I get for locking in mortgage rates at Ask Kate Mortgage Rate Lock Center I and Ask Kate Mortgage Rate Lock Center II.

Successful Home Buying Requires Meeting of the Minds - Successful Homeownership Even More

As a co-borrower on the mortgage, you are held just as responsible for paying back the loan as your husband. It does not matter whose name goes first on the paperwork of if you don't work outside the home. Even if you disagree with the terms, you are equally responsible for paying back the mortgage.

Your financial future is on the line and no one is going to care more about your mortgage than you. The originating lender is only involved for several weeks to process a mortgage application. But homeowners are on their own to pay it back... for many years to come. So make sure you can live with the mortgage.

Good luck and best wishes for a successful home buying and homeownership experience,

P.S. If you'd like to read more about the mortgage offered by the FHA for renovating houses, go to my page at FHA Rehab Loan.

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Closing on a Mortgage Loan
by: Building Home

I'm building a new house on the same property as my old house. The new house is 99% completed and I am about to go close on it.

But they said I have to demolished the old house first before we can proceed with the closing. They never stated that while I was trying to secured the loan.

The old house is going to be demolished when I closed on the new house and moved in. Where do they expect I go stay until we closed on the new house? Is this normal?

Hi, Kate here...

No! While the guideline requiring no existing structures is not unusual for land loans and construction loans, not telling you until closing is unacceptable!

Someone dropped the ball while guiding you through the process.

Ask for a supervisor and an exception to the guideline. The bank may not bend for you but you may be offered monetary compensation to defray the cost of your unexpected living arrangements due to their oversight.

Best wishes, Kate

P.S. Ask for written verification (with your signature) of their instructions to demolish the home including the estimate of cost if they insist that they previously informed you.

Click here to add your own comment.

You can also ask Kate about your mortgage at Ask Kate About Buying a House.

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