Back to the Future: Home Economics 101

By
Mortgage and Lending NMLS #94045

Home Ec Class was for sissies: learning to balance a home budget and bake from scratch was beneath me. After all, I was going to college for goodness sakes! Many of these 'vocational' courses including shop class (which I was not allowed to take as a girl) were chopped in favor of academics.  

So now we wonder why adults don't know how to balance their own checking accounts? We have become accustomed to believing the readout from our ATM machines as an indication of our monthly net worth!

While I know many people have planned thoughtfully and could not forsee their retirement accounts, home values and jobs cut by 40 and 50%, the truth is -- so many folks are in trouble. The rules have changed drastically. As a country and an industry, we do need to take some credit for suggesting ever increasing home values and economic growth, coupled with the refrain: 'you can always refinance later'.

Is no wonder many don't understand their mortgage commitments! After all, you sign a stack of papers with words like "Promissory Note" at the top. Not one borrower has asked me what that meant. I counseled a Realtor recently who helped his elderly mother into a 90% Pay Option ARM using his income to qualify. Incredible. The banks involved are facing lawsuits for just these tactics. One must wonder if this person actually knew what that 'sweet low payment' was all about.

The Plain TRUTH is that most people have gotten into financial distress over a period of years by living in denial. We are not a nation of worst case scenario planners. Even those who did plan for the downside (I can think of one very thoughtful builder who did) are caught way below their worst expectations. Damage control plan E and F are being enacted. Coupled with less than fully lucid financial planning, the average non planner is in deep. Way deep.

Telling Question: At what age would you like to have your home paid for? It just doesn't occur to folks that paying off their home is not only a sound idea but will free up their capital for other life issues. Like, uh, retirement for example? And that quaint idea of saving. Perhaps this is returning now.

So--what can you afford today AND tomorrow?  I now ask people to complete a household budget as part of their first consultation. I get a blank look. I hand them the standard budget form. This most basic tool is part of every Buyer's Ed class. You can take it online. or through your local counseling. The course is full of great information on the realities of home ownership.

Everyone is different! You see, on the standard loan application, your living expenses are not taken into consideration at all. Or how many mouths you have to feed, or how far you have to drive to work, or how many kids are in college or such things as disabilities or other ongoing issues that might cost you more to than the next person. Only your monthly credit and housing costs are considered. After that, you're on your own to work it out.

Which is a wonder that even FHA allows 50% debt to income ratios -- using your gross income to qualify you for a loan. 31% is the new 'affordable' target debt to income ratio according to the Making Home Affordable program....an example of perfect hindsight.

Here's a link to a good budget tool. Spread the knowledge!

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SUSAN TEMPLETON IS A LICENSED LOAN ADVISER IN WASHINGTON

NMLS# 94045

                 

 

Interest rates and products are subject to change without notice and may or may not be available at the time of loan commitment or lock-in. Borrowers must qualify at closing for all benefits. Loannetter is a private brand owned and copyrighted by Susan Templeton.

 

 © 2005-2015 susan templeton copyright

 

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Ambassador
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Joe Pryor
The Virtual Real Estate Team - Oklahoma City, OK
REALTOR® - Oklahoma Investment Properties

It it s funny thing but not funny haha that many of my short sale clients are Realtors and mortgage brokers. Talk about we should know better. At least as Realtors we have been through a school that teaches this. That being said, I don't see much about doing a budget, unless they opt for continuing ed like CRS.

Aug 22, 2009 02:39 AM #15
Ambassador
1,891,049
Gary Woltal
Keller Williams Realty - Flower Mound, TX
Assoc. Broker Realtor SFR Dallas Ft. Worth

Susan, now I know why I am not that good at baking cookies. Actually I did take Home Economics in seventh grade to meet the babes. Didn't meet the babes or learn too much about the cookies. But somewhere I did learn about ratios and interest rates and the like. So much is basic math which too many choose to ignore. Paying off a house? Do people actually do that anymore? Some do, you are right. We need to be more thinkers and not drifters through life. BTW, paying off a house is a great idea as we head into our latter years for security sakes.

Aug 22, 2009 05:09 AM #16
Rainmaker
355,153
Damon Gettier
Damon Gettier & Associates, REALTORS- Roanoke Va Short Sale Expert - Roanoke, VA
Broker/Owner ABRM, GRI, CDPE

Most kids graduate from high school with no understanding of basic economics or how credit works.  It is no wonder as most teachers don't have a solid grasp either.  It would be prudent for schools to bring mortgage and real estate professionals into the schools to teach students something about what will be their largest investment in years.....maybe then we can avoid circumstances such as we are seeing now.

Aug 22, 2009 10:56 AM #17
Rainmaker
66,965
Susan Templeton
Bellingham, WA
Sue, those of us classically trained to use a pencil and paper to work out math and balance our checkbooks have an advantage: it takes longer (than a computer program) so you tend to think about it! I also learned from a friend who attended Gamblers Anonymous that when you write everything down it helps make more of an impression on your awareness. Debit and credit cards are too easy to swipe and go. We live in a state of denial what it costs to maintain our lifestyles.
Aug 22, 2009 11:13 AM #18
Rainmaker
66,965
Susan Templeton
Bellingham, WA
Jackie, the good news is I am seeing twenty somethings who have witnessed their older siblings and parents get in trouble so they are much more aware and conservative in their home goals. One client was told by a bank they could 'afford' a $300,000 home. My number after their interview was $150,000. Their realtor helped them find a home under $140,000 and they are happy as clams!
Aug 22, 2009 11:19 AM #19
Rainmaker
66,965
Susan Templeton
Bellingham, WA
Joe, your point is well taken: if we as mortgage and real estate professionals are so blinded that we drank our own Kool Aid it's no wonder our clients are in trouble. I had one realtor yank a buyer (their friends) to a bank that 'saved them $300 a month' for a 3 year ARM after we had worked their budget for months based on fixed terms. I just hope their realtor is there to see that ARM reset and have the answer then. What are friends for?
Aug 22, 2009 11:28 AM #20
Rainmaker
66,965
Susan Templeton
Bellingham, WA
Gary, turns out I like homebaked cookies now! Your suggestion that we have become 'drifters' is hitting the nail on the head. A tactic of our media (I should know, I worked in that field) is to KEEP us from realizing the doller cost/consequences of our actions. So at last we have them in spades. Sobering stuff!
Aug 22, 2009 11:33 AM #21
Rainmaker
66,965
Susan Templeton
Bellingham, WA
Damon, I've been thinking of offering a guest course to elementary (the younger the better) schools about credit and home budgeting. Thanks for the reminder to put our energy where it may do some good!
Aug 22, 2009 11:37 AM #22
Rainmaker
66,965
Susan Templeton
Bellingham, WA
Christine, every basic office software program has a home budget template if you lose this one. Pass it on!
Aug 22, 2009 11:42 AM #23
Rainmaker
1,431,729
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

Susan,

I liked the days when FHA looked at the total situation and decided if you could afford it.  I have a big family and not a lot of debt.  We live on cash.  I am having trouble getting the home I need because of DTI issues, even though the mortgage would be cheaper than my rent.

Aug 22, 2009 12:36 PM #24
Rainmaker
232,107
Emily Lowe
The Lipman Group | Sotheby's International Realty - Nashville, TN
Nashville TN Realtor

Thanks for the information and the links - I try and encourage my buyers not to buy too much house!  Budget matters!

Aug 22, 2009 12:48 PM #25
Rainmaker
66,965
Susan Templeton
Bellingham, WA
Gene, if you keep a record of your cash and develop a household budget for say six months your broker will have a compelling picture for the underwriter. Some banks hold their FHA loans so I 'd ask around. Debt to income ratios can only go to 50% but it sounds like some good bookkeeping would help your case. Good luck!
Aug 22, 2009 01:53 PM #26
Rainmaker
66,965
Susan Templeton
Bellingham, WA
Emily, I like hearing Realtors get it that buyers need budgets!
Aug 22, 2009 01:55 PM #27
Rainmaker
453,716
Allison Stewart
St.Cloud Homes - Saint Cloud, FL
St. Cloud Fl Realtor, Osceola County Real Estate 407-616-9904

Susan- Very Well Said.   Basic bookkeeping-tracking of discretionary spending and for goodness sakes put away those credit cards! 

Aug 22, 2009 10:03 PM #28
Rainmaker
986,173
Will Nesbitt
Nesbitt Realty at Condo Alexandria - Alexandria, VA
Nesbitt Realty is a family-run brokerage.

Great stuff. Thanks for sharing!

Aug 22, 2009 11:25 PM #29
Rainmaker
2,560,322
Rebecca Gaujot, Realtor®
Vision Quest Realty - Lewisburg, WV
Lewisburg WV, the go to agent for all real estate

Susan, great post. I did take HomeEc Class, and found it fun.  Thanks for the budget tool link..I will be forwarding to nephew..they seem to always be out of money a week after they are paid.

Aug 22, 2009 11:49 PM #30
Rainer
118,327
Ginger Moore
Wilkinson & Associates Realty - Gastonia, NC

Hi Susan, thanks for the budget tool, and sharing! nice blog!

www.charlottelakewyliehomes.com

Aug 23, 2009 03:46 AM #31
Rainer
8,531
Joseph "Cathan" Potter
Coldwell Banker - Sebastopol, CA

Thanks for the post and the budget worksheets.

The most time I remember being spent on anyone trying to teach me about budgeting (in a classroom setting) was in a apprenticeship class in carpentry, I think it was also covered briefly in high school economics.

And, unfortunately, Damon's comment about teachers is often true.

Aug 23, 2009 05:44 PM #32
Rainmaker
1,618,790
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg Real Estate

I think you're a little late getting the word out.  If there is anyone still available to listen, you've given sound advice.  Good post. 

Aug 24, 2009 04:39 AM #33
Rainmaker
66,965
Susan Templeton
Bellingham, WA

Alison, the credit card snafu is a dying trend, thank goodness...but it will take years for many folks to dig out of that habit.

Will, thanks for your interest!

Rebecca, if more folks helped their family members just think of the difference we could make! 

Ginger, you are most welcome...pass that budget link on to everyone you know!

Joseph, can I get you to train my contractors?

Lyn, it's never too late to share good advice...hopefully!

 

Aug 24, 2009 09:03 AM #34
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