My brother is supposed to get married near the end of the year and up until recently he and his fiance were looking at homes around the Racine area. I had a few words for him considering my recent foray into (and then retreat away from) the real estate arena. This morning while reading a Milwaukee Journal-Sentinel article my blood starting boiling, and as you’re well aware my blood boiling usually results in a whazzmaster post.
One of the things I told my brother is not to get too wrapped up in the nonsense realtors and mortgage bankers spew. They want your commission, and they aren’t going to be hanging around when you can’t make your monthly payments. That doesn’t mean they’ll try to bankrupt you, but it also means that whatever magical number you’re “approved for” is what they’ll try to find for you. I’m here to say: take that “magical number” with a great big grain of salt. Most people assume that some sort of rigor goes into the generation of what you’re approved for, but in reality it’s just another company who is looking to get your money. You need to find out how much you’re willing to pay per month, and once you have that number find out if you are approved for that much. Don’t go and just see how much you are approved for and think, “well, I guess they think I can pay that much per month.”
The reason the article made my blood boil was because of a few choice quotes from assholes in the industry:
Subprime lender Jim Howe, also broker-owner of Real Estate Professionals in Racine, said most defaulting borrowers he sees are people who bought and borrowed beyond their means.
“It’s not the lenders. They’re just going by their (regulatory) guidelines and doing what they can do,” Howe said. “Now you’ve got the people who got the loans not living up to their obligations.”
No, in fact it is the lenders who looked at these people who obviously couldn’t afford at $500,000 mortgage and said, “We like the cut of your jib! Here’s $500,000!” If someone in the financial industry supposedly looks at your financial situation and says “We think you deserve this much money”, most people will think there is some justification in their determination. As someone who has gone through the ‘game’ I can honestly say that I got caught up in the lies and exaggerations, all in the name of finding “my home.” The real estate industry loves to play that up: you aren’t finding a house, you’re finding your ‘home.’ That obviously involves some serious emotional manipulation. But all the platitudes about finding ‘your home’ don’t pay the bills.
For example, a radio commercial currently in rotation in Madison exhorts people to buy a condo because of “pride of ownership” (“you mean like I can paint the walls any color I like?” exclaims a super-excited young woman) and “tax benefits”. The Don’t-Ever-Look-Behind-The-Curtain salesmanship technique when selling people into crushing debt is probably what bugs me the most about the entire real estate industry.
And so, I’ll leave you with a summary of my opinions. I’m not some financial wizard who traces every up and down of the market. But I am a regular schmoe who got caught up in the housing game and managed to extricate myself before it went south. If you want to go buy a house right now, I don’t begrudge you that. IF you have the means. If you have money saved for a down payment, and you can get approved for a 30 year fixed rate mortgage at a monthly rate you’re comfortable with then you currently have maximal negotiating strength. But, a few caveats:
- DON’T take whatever the bank extends to you. At the moment lenders are tightening the reigns because of the soaring foreclosures, but if you have good credit and healthy income they’ll still fall over themselves to throw money at you. Instead, work out what monthly payment you’re comfortable with and see if you can get approved for that much. If approved for more, who cares.
- DON’T fall for the ‘it’s not a house, it’s a home’ emotional bullshit. It’s a house. You will live there. You’ll probably live in several before you die. It’s a place to put your stuff. It’s a gigantic financial commitment that you should look at rationally.
- DON’T extend yourself into a crazy mortgage (by which I mean anything BUT a 30 yr fixed) at this point. Your house will not appreciate $100,000 in one year with the rates tumbling so that you can flip it for a profit. Again, keep in mind that you are about to engage in a transaction that’s a healthy percentage of a MILLION dollars. Do you have a plan to eventually get it paid off in some way?
I’m just an idiot that almost got burned, and I don’t want to see any friends or family tumble into a pit of debt and bankruptcy if they can afford it. It’s a house. That’s all. Come stay at my place for awhile, homey.
Also: I was super busy yesterday but cannot use that as an excuse. Happy Birthday Rumthumb! Looking forward to The Magnus Der Magnussun tonight for booze and tapas.