Don't Buy More House Than You Can Afford

By
Mortgage and Lending with Your Tampa Bay Mortgage Source

CautionToday I logged onto my computer and was caught by a pop-up advertising a $350,000 mortgage for $999 a month.  WOW!  Normally, I shake my head and close them out.  Or, when I see the advertisements on T.V., I change the channel.  I had a reality check the other day when my finance' commented in response to one of these low payment commercials.  He said, chucklin, "Honey, we should call them!"...of course he was joking, but I realized that most consumers don't know what we in the business know. 

In our local Tampa Bay market, we have high home prices and many consumers are looking for ways to finance their dream homes.  For some consumers, these mortgage advertisements, like the one I saw today, may entice some home buyers.  The trouble is the mortgages that come with these low payments can be dangerous. 

In most cases, these very low mortgage payments come with interest only mortgages or negative amortization mortgages.  Negative amortization explained simply means that each monthly payment only covers a portion of the interest due.  The unpaid interest is added back on to the principle balance thus increasing monthly the amount due and furthermore the interest payment each month.  These negative amortization loans have resulted in many of the mortgage foreclosures we are seeing in today's market. 

When a consumer is looking at purchasing or refinancing a home and looking for a low monthly payment, they must be careful because there are many loans out there that are not for everyone.  Typically, if a homeowner expects to stay in their home for over 10 years and have stable monthly income, their best option is a fixed rate mortgage.   ARM loans can be a good fit for consumers who will only be in their homes for a couple of years and or expect a higher income in the near future.  Interest only loans could be a financing option for consumers who make large income in commission, although the income may come in more infrequently.  These consumers can then plug additional income onto their mortgage while making the interest only payment monthly. (Disclaimer: It is a complex financial process determining which loan fits for a consumers financial future.  These are not the only options, nor am I saying this is the outline one should use for finding a mortgage, these are just basic examples.)

The key point is consumers should understand there are hundreds and hundreds of mortgage options available and only a trained and experienced professional should advise you on your best options.  Be careful with advertisements that sound too good to be true, they may be the start of a slipperty slope. 

Comments (11)

Rebecca Savitski
BSR Real Estate Group - Cary, NC
NC Real Estate Listings

My favorite advice to everyone if it sounds to good to be true it probably is buyer beware.

May 28, 2007 04:45 AM
Jeff Fulgham
T.U.P. Realty - Tupelo, MS
Broker E-Pro ABR
Excellent points. Personally I think these type loans should be outlawed for owner occupants. For investors that are only holding the property a short time they may work.
May 28, 2007 04:51 AM
Donna Harris
Donna Homes, powered by JPAR - TexasRealEstateMediationServices.com - Austin, TX
Realtor,Mediator,Ombudsman,Property Tax Arbitrator

I love when some of those commercials come on and I pause the tv to read the tiny writing, and most aren't even licensed in Texas.  Why spend the money advertising in TX, if you're not going to get any business?  I guess the phone still rings, and they can refer to an affiliate.

May 28, 2007 05:06 AM
Leah Ross
Your Tampa Bay Mortgage Source - Tampa, FL
Tampa, Florida Mortgage

Rebecca, thanks for the comment, it's so true!

Jeff, thank you too!  I agree that some loans are PERFECT for the right person (i.e. investors).  Again, that's why I stess the importance of consumers working with someone who can give them this advise!

Donna, thank you for the comment!  I was laughing reading your post because I do the SAME thing!  I think people get sick of me pointing out the fine print.  I always say...SEEEEE!  It's a scam, darn them!!  Glad to know I'm not the only one obsessed with busting these predators.

May 28, 2007 05:42 AM
Dave Cheatham
INC Financial - Bartlett, IL
I agree. I see many people buying to much of a payment.  It hurts them after a while.  They do this and do not have a funds if issues might arise.
May 28, 2007 07:41 AM
Jack Haydon
Charles Rutenberg Realty - Clearwater Beach, FL
Clearwater Beach Condos - Real Estate Homes for Sale

Hey Leah,

This is such a good point. Everyday, at least one of my prospects asks me if they should hook-up with one of the internet loan companies.

Of course, I explain what these folks are offering and how they are remote and cannot possibly be an advocate like you :) to work through the 200+ options and help them find the right solution for their needs, and how you are local and sooooooooooooooooooooooooooo caring throughout the entire transaction.

Jack 

 

May 28, 2007 01:13 PM
Cyndee Haydon
Charles Rutenberg Realty - Clearwater, FL
727-710-8035 Clearwater, Beach Short Sales Luxury Condos &Homes
Leah - that's why we choose to work with YOU! Do you also have to explain to them there's no Santa either? Great post! 
May 28, 2007 02:10 PM
Katrina Madewell
Charles Rutenberg Rlty- More than 5,000 agents(813) 777-1196 - Tampa, FL
Tampa FL Homes for sale | Tampa Bay - (813) 777-1196

Good info, I agree too many of the record foreclosure numbers we are having are mostly contributed to these Neg AM Loans!!!  Sad part is its just the consumer that looses in the end... As much as I enjoyed working with Andy and Mendi, it breaks my heart to see people have these heart aches

 Great post

May 31, 2007 06:34 PM
Leah Ross
Your Tampa Bay Mortgage Source - Tampa, FL
Tampa, Florida Mortgage
Dave, you are right on the money!  That is why is is so important for lenders to consult with their clients about what will happen in the future.  It is our job to make sure customers are not put into loans that do not fit!
Jun 04, 2007 12:02 PM
Leah Ross
Your Tampa Bay Mortgage Source - Tampa, FL
Tampa, Florida Mortgage
Jack & Cyndee~  Thank you for the advocacy!  It is a favor returned by working with consultants like the two of you!
Jun 04, 2007 12:03 PM
Leah Ross
Your Tampa Bay Mortgage Source - Tampa, FL
Tampa, Florida Mortgage
Katrina, I agree!  Neg AM loans aren't to blame 100%, it's the mortgage companies behind them.  Because of the record foreclosures, we can now rest assured that some of the "bad guys" won't be around much longer!
Jun 04, 2007 12:04 PM