Give a home buyer a fish ….
There were some intriguing responses to yesterday’s entry about “fixing” the nation’s mortgage mess and the foreclosure epidemic, such as giving a tax break to people who are upside down on their mortgage –- but requiring them to use it to pay down the mortgage. I’m not sure how politically feasible all the ideas were, but I certainly am still mulling over many of them.
One thing that surprised me, however, was some people’s opposition to my suggestion of making financial education a mandatory component of the mortgage process. Honestly, I thought that was about as safe a suggestion as you could make.
For the record, I am not advocating re-education camps, or creating new government agencies.
However, I have found that education empowers people to make better decisions.
And the type of education that I am talking about is already provided by a number of nonprofits around the state –- independent agencies, not real estate agencies or banks or mortgage brokers. (Many affordable housing lottery winners are already required to take these classes. For a list of agencies, click here.) One such agency is the Housing Assistance Corp. in Hyannis. I took one of their Homebuyer Education Workshops several years ago – it ran over 4 nights, from 6:30 to 9 p.m., cost me $60, and likely saved me from becoming a foreclosure statistic.
Mortgage officers from local banks lead the class, but they use a curriculum that keeps it from becoming a marketing gimmick for anyone. They bring in guests from every aspect of the process: an inspector, a real estate agent, and a lawyer.
But the most important thing they did was walk us through mortgage options, requirements, and all the expenses. I still have the spreadsheet they used to compare the costs of 30-year fixed mortgages vs. 5/1 ARMS vs. Soft Second vs. FHA vs. 80/20s, etc.
It was an eye-opener. It definitely kept me from jumping into the market when mortgage rates were ridiculously low and you could buy without having a down payment.
Now, I’m not naïve enough to believe such classes will single-handedly resolve the foreclosure problem. But I do think if more people took such classes it would reduce the problem. It’s like that old adage, “Give a man a fish and he’ll eat for one day; but teach a man to fish and he’ll eat forever,” or something like that. With home buying, however, it’s: “Give a man (or woman) a mortgage and he’ll get to move in; but teach him about the options and he’ll get to stay in that home.”
Anyway, I’d be interested to hear from people who have taken similar classes either at a nonprofit or one of those free sessions offered by banks and agents. Were the classes helpful? What did you get out of it?
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Nice job Stacey outlining the benefits of learning about the options that borrowers may have in financing a home purchase. The class you took was ten hours in length, not a ten minute conversation over the phone with a loan officer. The newer loan products have specific applications and strengths - but not for all homeowners. I have no idea why large investors were apparently paying so little attention to how their millions and billions of dollars were being packaged into relatively high-risk home loans. One Florida real estate consultant described the current financial situation as "historic" - something we'll read about in textbooks and articles for years to come.
Why are people losing their homes?
1. They bought a home they could not afford.
2. They drank the kool-aid and signed on the dotted line without understanding the mortgage.
The solution:
1. Don't buy a home you cannot afford. You don't need a class for this, just an ounce of common sense and a calculator.
2. When you take out a mortgage, understand the terms before you sign. Read books, check the internet, attend a class. It's called due diligence.
Quite simple really.
I wish I had taken a class. I read a few articles, but mostly I relied on the advice of friends and relatives who had bought houses. That wasn't a mistake necessarily, just not enough. The situation that the market was in at the time....well let's say it bore little resemblance to the environment my father was in when he bought his first house for $35,000.
Look, I did some things right, like buy at a price we could afford, which has since saved my tail. But I also made mistakes, like refinancing to a 5 year ARM to lower the payment even more so we could save for the next house we knew we'd be buying. I thought when the time came I'd be able to sell at some profit. I was pleasantly surprised when that profit appeared to grow quickly, then unpleasantly surprised when it evaporated. For the most part I understood the basics of the loans I got, but I -- and many other decent, intelligent, well-meaning people -- didn't suspect that home values could drop so drastically. THAT possibility would've been helpful to know about.
And for the scolds: I know I could've looked at price history of Boston and seen prices drop in the last housing bust, perhaps allowing me to foresee the current mess, but it just wasn't something I considered. How many people do? So education of some sort would've helped. Seeing in clear language that my ARM was tied to the CMT, what that meant, where I could watch its movement, what the adjustment could be...these types of things would have been helpful.
I think if you have to take a mandatory class in order to figure out how much house you can afford, then I don't want you being my neighbor.
How long can the class be? First- be employed...next...plan to spend 3x your yearly income. Have a savings account with AT LEAST 6 months worth of emergency money in case someone loses their job, have ANOTHER savings account for emergency money for when things in the home break/need repair/etc. Have money for a down payment. Enjoy the stability of a fixed rate mortgage.
If you can't do that- rent or keep living with your parents.
Its possible to give a class in one sentence.
"Do your due diligence"
Everything else comes from that.
This blogger might want to review your comment before posting it.
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