Tuesday, August 5, 2008

Didn't We Almost Have It All

There was a point during the Great Housing Bubble where it seemed one could have it all. You wanted a dream house? Just find someone to give you a no doc loan with a teaser rate and 100% financing and you could have any home you wanted. No commitments and no compromises were required. No need to worry about the rates resetting - the advice was to just refinance or sell the property. After a year or two of ownership why not take out some equity out to buy your dream car to go with that dream house. For those who fed into the ideals it was like we almost had it all.

Almost... but those days are gone. Those who bought into the bubble's ideals are in the most trouble. Those who hesitated know that the bubble paradigm has changed. The new paradigm is very similar to the pre-bubble paradigm. The big shift is down payments. Not only are they required again - but in Sunday's Record about sacrificing for a down payment. (For those still in trying to maintain the bubble mentality sacrifice means "forfeiture of something highly valued for the sake of one considered to have a greater value or claim.") The article is titled How to raise a solid down payment. Lets take a look -

In rare instances, low- to no-down-payment loans are still available to novice buyers seeking to purchase a starter home. But such mortgages are now much harder to obtain - especially if you're self-employed or have blemished credit, says Eric Tyson, co-author of "Mortgages for Dummies."

"In this era of foreclosures, lenders are extremely conservative about their standards. Anyway, people with a solid, 20 percent down payment always get the best possible terms on a mortgage," Tyson says.

If you've long been accustomed to the freedom of having at least one car per driver in your household, scaling back could at first seem like a drastic downshift in your lifestyle. Yet as Moore points out, this needn't be a permanent change

As financial advisers can attest, the first step toward freeing up money for savings is to hack away at your routine spending. That means taking several hours to review your checkbook and credit card statements to see where your money is now going. While doing so, many people are shocked to see how much money slips away through small expenditures, such as buying the latest CDs or going out to lunch with co-workers.

Mortgage lenders frown on the use of borrowed money for a down payment - even if it comes from your best friend on the easiest of repayment terms. But most are fine with the use of a cash gift for all or part of your down payment.

During the bubble we almost had it all. We did not need to give up cars for a down payment - we did not need a down payment. We did not need to give up indulgences - with teaser rates we could afford our cars, home and all the indulgences we wanted. Unfortunately we can not have it all. And we are paying the price for trying. Also unfortunately some are paying the price more than other.


JM said...

I read the linked article about down payment savings hints, and I wasn't surprised. MSN Money recycles similar money saving hints every so often, including my favorite strategy, taking in boarders to help with the mortgage. Media outlets are paying lip service to belt-tightening for now, all in hopes that once the economy starts moving again the easy money will return. The concept of "I can't afford it" hasn't hit home.

NJHH said...

Hi JM!

I have noticed almost all of the money saving techniques are along the same grounds. Spend less across the board with various tips how to do this. I recommend the Tightwad Gazette since the book is jam packed with all kinds of techniques. Every so often I peruse it to see if there are new ones I can adopt or switch things due to lifestyle changes.

That boarder idea has been getting alot of play lately. There was an article in the NYT recently about a Baltimore program to match financially troubled homeowners with boarders. I will try to post about tomorrow.

Saving money and belt tightening directly contradict our ideology. Even though we as a nation are chastised for not saving we are given little incentive. I was just reading The Millionaire Next Door. Noticed how most millionaires profiled live lives contradictory to our ideals about millionaires. Of course you become a millionaire by saving money not spending it.

JM said...

The boarders idea cracks me up every time! I'd like to see parents explain to their kids why they have to give up their room to a complete stranger, ideally one without a hockey mask or a machete. But if Mom and Dad used an option ARM for the new house which was since heloc'd, they may have to let the large gentleman in the mask live in the house in exchange for $75 weekly and light chore duty.

The Millionaire Next Door changed my life, or more accurately, woke up something that was always there. You might also enjoy Your Money or Your Life - I did, at least up until the end. Millionaire surprised me by the anecdotes about broke doctors and lawyers - the trappings of such a lifestyle can easily erase the large paychecks. Both books helped me get a sense of what is important and what is not.