Aaaand this is why the economy crashed

hoffse · June 2014

Well my lender sent the long-form mortgage application with everything listed on it - income, debts, etc. for me to review.

I noticed my student loans weren't listed, even though I disclosed them. They are loans that I pay to my parents, and the remaining balance is still over $68K. So I emailed the guy and asked why they weren't on there - I stressed that this is a loan that I absolutely feel obligated to pay.

Answer: "Eh they didn't show up in your credit report, so as far as I'm concerned they don't count."

Now let me be clear - it lowered my interest rate, so I'm not complaining personally. But seriously? SERIOUSLY? What if I hadn't be OCD about determining exactly how much this was going to cost us (I was only off by $6 by the way)? What if I had been all, "Oh it doesn't count, so we can afford more!"?

Sheesh.

@Xstatic... I think you're going to be just fine when you go in for your application tomorrow

brij2006 · June 2014

It's things like that where some mortgage companies still wonder why they go under. Hello, there is why! So many people have no clue about their money or budget, and you tell them they can have more money or do not need to include debt that isn't pulled by their credit report. It doesn't make sense. It should be factored in.

hoffse · June 2014

brij2006 said:

It's things like that where some mortgage companies still wonder why they go under. Hello, there is why! So many people have no clue about their money or budget, and you tell them they can have more money or do not need to include debt that isn't pulled by their credit report. It doesn't make sense. It should be factored in.

I agree! I actually argued with the guy about it a bit - and then I realized what I was doing and shut my mouth. But still. I CERTAINLY factor it in, which is what I was trying to get him to understand. He was all, "Yeah but you don't legally have to pay them."

Umm... actually? I kind of do.

IAmSherlocked · June 2014

Wow, that's incredible. I have a friend who is in over her head right now because of pretty much this same thing. We were house hunting together at the same time and she started off looking at homes in the same price range as me but when she talked to the banks they said she could get a home that costs $100,000+ more than that initial price-range (they didn't factor in SLs that were in deferment) . She figured the banks couldn't be wrong, right? I vividly remember a conversation with her where she was ribbing me for being "cheap" and not looking at homes in the same subdivision as her (even though the homes are huge and gorgeous!) because I thought it was too expensive and me telling her that it wasn't smart to spend all that money.

Now she has to start paying her SLs back and she is really feeling the pinch. She was just complaining to me the other day about how she never has any money and I couldn't help but look at her like she was crazy. Of course I feel bad because she's my friend, but seriously? They really need to have a required class in high school and college that teaches people about loans, mortgages, savings, and just basic money sense. So many of my friends that are my age seem to have no grasp on money.

lifeonthehill · June 2014

My friend (21) and her husband (24) have owned their home for about 4 months and in the last 3 months are falling behind on payments. The bank said they could afford a $160,000 loan and they took it all.

They didn't count her husbands nearly $75,000 in car loans that are in his moms name. They also didn't count her $15,000 in student loans that are in her moms name. I was happy when she said she mentioned them because I was hoping she either wouldn't get the loan or would get something smaller. Sadly she was happy they didn't count them so she could get more money.

Now she is in a completely stressful and unnecessary situation.

I am so incredibly thankful that I know better.

Xstatic3333 · June 2014

Thanks @hoffse! But I agree, that's nuts. I still can't get over FHA not counting deferred loans, like someone else mentioned in another thread. Deferred =/= gone.

Wulfgar · June 2014

I still can hear my one former "boss" tell my other "boss" that he should stretch into a house taking the one that he can barely afford since his income should always go up and in a few years it will be comfortable. I told him that he should get one that is on the lower end of his budget range and no more than twice his income. I think he listened to the other fellow and I was glad when I got laid off from that company since they didn't have a clue on what they were doing from a business sense and they were not listening to the Germans who's company they had bought and had been doing the business that they wanted to break into.

ta78 · June 2014

This makes me wonder about our friend that is looking at houses right now. We were wondering how he got approved for such a high amount when he has 100k in student loan debt.

CuriousKiddosMama · June 2014

I think that is just crazy. We just got our approval letter back, and we got approved for a huge amount over what we feel comfortable spending. We will have a huge downpayment though (selling our house to buy a new one) so I"m kind of glad the approval letter shows so much that way we won't have to try and explain in our offer that we are planning on bringing about 40-50% cash to the table. That really is the only reason we are contemplating moving up.
I really don't like that they do this, and I'm also glad that it isn't public knowledge. I have a friend with about 80k in student loans left who is starting to look at houses. She currently thinks she wouldn't get approved- if she knew that student loans often don't count she would be house hunting tomorrow, and then in trouble in just a couple months. I don't understand this at all.

vlagrl29 · June 2014

RockyMountainGirl88 said:

Wow, that's incredible. I have a friend who is in over her head right now because of pretty much this same thing. We were house hunting together at the same time and she started off looking at homes in the same price range as me but when she talked to the banks they said she could get a home that costs $100,000+ more than that initial price-range (they didn't factor in SLs that were in deferment) . She figured the banks couldn't be wrong, right? I vividly remember a conversation with her where she was ribbing me for being "cheap" and not looking at homes in the same subdivision as her (even though the homes are huge and gorgeous!) because I thought it was too expensive and me telling her that it wasn't smart to spend all that money.

Now she has to start paying her SLs back and she is really feeling the pinch. She was just complaining to me the other day about how she never has any money and I couldn't help but look at her like she was crazy. Of course I feel bad because she's my friend, but seriously? They really need to have a required class in high school and college that teaches people about loans, mortgages, savings, and just basic money sense. So many of my friends that are my age seem to have no grasp on money.

Just cause the bank says you can doesn't mean you should. When I bought this house they approved us for a loan about double of what we could really afford. It just astonishes me how "ignorant" people are with money. One of my students is taking a high school finance class this summer for summer school. I asked her what it all entailed and she did tell me that it includes learning about mortgages. I don't remember that type of class when I was in HS, but I'm glad they offer it although I don't know if it's mandatory. It should be!

hoffse · June 2014

Really, federal student loans should absolutely "count," whether deferred or not - you can't discharge them in bankruptcy, unlike a mortgage. They stick with the borrower forever until they are gone.

I understand that the loans to my parents are a lower priority than a mortgage if I were to go bankrupt. In that instance the bank would be paid first. But I still thinks it's irresponsible to exclude them.

Erikan73 · June 2014

One thing that impressed me with someone that I use to work with is that when he went to apply for a mortgage, they wanted to use the amount on his w-2 for his annual income. He fought with them to figure out based on a a normal 40 hour paycheck. The reason is that he was in tree work/snow removal so he can get lots of overtime depending on the weather. If there are big storms, lots of work in the summer, but if there is no snow, then no hours in the winter. He puts his OT money away to balance out when his hours are short. I remembered that when I went to apply for a mortage and made sure to do the same thing.

IAmSherlocked · June 2014

vlagrl29 said:

RockyMountainGirl88 said:

Wow, that's incredible. I have a friend who is in over her head right now because of pretty much this same thing. We were house hunting together at the same time and she started off looking at homes in the same price range as me but when she talked to the banks they said she could get a home that costs $100,000+ more than that initial price-range (they didn't factor in SLs that were in deferment) . She figured the banks couldn't be wrong, right? I vividly remember a conversation with her where she was ribbing me for being "cheap" and not looking at homes in the same subdivision as her (even though the homes are huge and gorgeous!) because I thought it was too expensive and me telling her that it wasn't smart to spend all that money.

Now she has to start paying her SLs back and she is really feeling the pinch. She was just complaining to me the other day about how she never has any money and I couldn't help but look at her like she was crazy. Of course I feel bad because she's my friend, but seriously? They really need to have a required class in high school and college that teaches people about loans, mortgages, savings, and just basic money sense. So many of my friends that are my age seem to have no grasp on money.

Just cause the bank says you can doesn't mean you should. When I bought this house they approved us for a loan about double of what we could really afford. It just astonishes me how "ignorant" people are with money. One of my students is taking a high school finance class this summer for summer school. I asked her what it all entailed and she did tell me that it includes learning about mortgages. I don't remember that type of class when I was in HS, but I'm glad they offer it although I don't know if it's mandatory. It should be!

My thoughts exactly! DH and I had planned on buying a house that we could afford on just on income and had set our search accordingly. Even if you take both of our incomes combined, we were blown away by how much the bank would have let us borrow.

That is really great that there are some finance classes available for HS. My brother just graduated from HS and is looking at going to college in the fall, but he knows squat about money, so maybe I'll check and see if there is something in his area. Coming from the same family, I can say for certain that my parents haven't talked to him about money and I worry about the fact that he's probably going to need SLs to get through school. Poor kid didn't even know about ATM fees until the other day when we were talking. [-(

jlaOK · June 2014

I agree that people need to think more about what monthly payment they can afford and not just what they can get approved for. This is what we did when we got our first house.

We are building a house and had to get pre-approved for the loan. My salary fluctuates a little because I get paid hourly and not salary. Because of this they approved us for the loan based only on DH's salary. DH makes about 60% of our next and I make about 40%. I was shocked that we were approved based only on his salary because there's no way we could comfortably make the payment without my income.

uncreatedsnow · June 2014

Hoffse, are the loans to your parents personal loans or PLUS loans that they took out for your schooling?

If it's a PLUS loan that loan is not tied to you in anyway, as it is just in your parent's name. If not then that is ridiculous.

Though I think if you disclose that debt as something that isn't in your name but you are paying and responsible for they should take that into consideration.

Also, it's important to note that a lot of people who have X amount in student loans are lumping in the amount they owe in PLUS too even though that has no bearing on their own credit. Ex. I "owe" 90k but only 33k of that is in MY name.

brij2006 · June 2014

AprilH81 said:

When I was 23 I bought my first house (May 2003). I had been working at my first "real" job for 3 months making $25,000 a year and the bank pre-approved me for $150,000 mortgage. I had no down payment, no emergency fund (but a small mutual fund as savings) but fortunately a lot of common sense and great parents who helped me out.

I knew that I couldn't afford that and my parents told me that I shouldn't spend nearly that amount. I ended up buying a foreclosure for $83,000. My parents gifted me the down payment ($1,000) and then proceeded to gift me about $6,000 in appliances, new flooring, paint, ladders, and a lot of hand me down furniture.

When I got my first mortgage payment I called my parents in tears because the payment was about $200 more than what I had been told it would be. It turns out that the "mortgage payment" the lender kept quoting me did not include the escrow amounts for taxes and insurance. I was scared to death... It was tight financially for me a few months then I got a roommate to help out with expenses.

Had I listened to the bank and bought a $150,000 house I would have been screwed.

This was exactly H when he bought our house before we were married. He made $23k/year and was applying for a home mortgage by himself and with only $6k in savings. They pre-approved him for $125k with his student loan debt and car payment, because he had perfect credit. He bought a foreclosure for $49k, and we can't imagine having a higher payment than we do now. There's no way we would have been able to make more than the minimum payments on our student loans if we had a mortgage for a $125k house.

Our friends did exactly this, and bought more house than they can afford. Now they struggle each month and she can't SAH with their son. They both regret buying their house, but know they can't afford to sell it and bring money to the table. It's sad.

maple2 · June 2014

Not to derail the conversation, but when we applied for our mortgage, I was honestly amazed that there was no consideration of children/childcare. We spend more on that than on our mortgage. Child care was either going to be a mandatory monthly payment (much like a loan) or one of us would have had to quit our job (thereby lowering our income), but the bank didn't take that into consideration at all when determining how large a loan we would be eligible for. I know this wouldn't apply to everyone, but it seems like it should factor in. Debt seems like an even more obvious thing to include.

cbee817 · June 2014

maple2 said:

Not to derail the conversation, but when we applied for our mortgage, I was honestly amazed that there was no consideration of children/childcare. We spend more on that than on our mortgage. Child care was either going to be a mandatory monthly payment (much like a loan) or one of us would have had to quit our job (thereby lowering our income), but the bank didn't take that into consideration at all when determining how large a loan we would be eligible for. I know this wouldn't apply to everyone, but it seems like it should factor in. Debt seems like an even more obvious thing to include.

This- DH and I always joke that we can have 2 houses in our neighborhood once the day care payments are done. For 2 kids full time, it equals house payment (principal, interest, escrow), gas, electric, cell, and water bills (what we consider utilities)... it's nuts! We'll feel like millionaires when they're in grade school.

Xstatic3333 · June 2014

cbee817 said:

maple2 said:

Not to derail the conversation, but when we applied for our mortgage, I was honestly amazed that there was no consideration of children/childcare. We spend more on that than on our mortgage. Child care was either going to be a mandatory monthly payment (much like a loan) or one of us would have had to quit our job (thereby lowering our income), but the bank didn't take that into consideration at all when determining how large a loan we would be eligible for. I know this wouldn't apply to everyone, but it seems like it should factor in. Debt seems like an even more obvious thing to include.

This- DH and I always joke that we can have 2 houses in our neighborhood once the day care payments are done. For 2 kids full time, it equals house payment (principal, interest, escrow), gas, electric, cell, and water bills (what we consider utilities)... it's nuts! We'll feel like millionaires when they're in grade school.

For us, just one in daycare will equal our total housing cost, perhaps minus heat. It is a big consideration. I really like that our bank had us decide how much to apply for. If every bank did that, more people would sit down to do the math in advance.

hoffse · June 2014

uncreatedsnow said:

Hoffse, are the loans to your parents personal loans or PLUS loans that they took out for your schooling?

If it's a PLUS loan that loan is not tied to you in anyway, as it is just in your parent's name. If not then that is ridiculous.

Though I think if you disclose that debt as something that isn't in your name but you are paying and responsible for they should take that into consideration.

Also, it's important to note that a lot of people who have X amount in student loans are lumping in the amount they owe in PLUS too even though that has no bearing on their own credit. Ex. I "owe" 90k but only 33k of that is in MY name.

The loans were originally in my name. As soon as I graduated, my parents paid them off and basically re-fi'd them for me, so I'm paying them back at half the interest rate. It was a really helpful thing.

So no it wouldn't show up anywhere, and I understand why the guy didn't include it. But it's still a major loan obligation I voluntarily disclosed as something I plan on paying. It's a lot of money each month that I feel I cannot allocate to housing costs.

I think daycare costs are similar. I suppose the bank thinks they are somewhat discretionary - perhaps parents might be able to find less expensive childcare, or work something out with a family member, or whatever. But if a parent tells the bank, "I send my kid to daycare X, and this is what it costs," then the bank should consider that instead of excluding it. I can't think of any parent who would want to move their kid to a crappy daycare just so they can afford a more expensive house.

This guy basically assumed that I would just stop paying my parents back if I ran into financial trouble. Would my parents let me skip a month so we didn't have to charge things to credit cards if we had a financial emergency? Probably. But day-to-day, it's not a discretionary expense to me, and I would cut out a lot before cutting out that.

mana8503 · June 2014

They don't count child care, but they do count child support. Which I understand but at the same if we had children together, we wouldn't have to claim them as debt.

short+sassy · June 2014

On the other side of the coin, my mom loaned me some money for the down payment so I could put 20% down. Included in all my paperwork, I had to include a notarized letter from her that this money was a gift and did not need to be paid back (though in reality that wasn't true). But then, I was also buying a house that was only half of what I had been approved for.

Ugh, all these stories. I just don't understand people. Who wants to be struggling and in over their head? Yet, I've seen it. My good friend and her DH, back in the "heyday" of the market, bought a townhouse that they could ONLY afford with an interest-only loan. Unfortunately, I did not find out about this nightmare until after they'd closed and it was too late. They were fortunate to get it restructured and not be foreclosed on once the ride was over, but they live very basically and have no savings/e-fund.

blondie42107 · June 2014

Yikes! Our lender tried to get us to borrow way more than we could comfortably afford. He was nuts.

Wulfgar · June 2014

That reminds me of the engineers on Property Virgins that bought a house in Colorado with an interest only loan and that was a stretch for them. That is another reason that we had the housing bubble collapse like it did and put so many people into bankruptcy.

What I love is how the main stream media wants to blame medical costs when the average person has a house that takes up 40% of their income than all of their other debts and lifestyle takes 100% of their income so if any emergency happens they are in deep trouble.

Aaaand this is why the economy crashed

Re: Aaaand this is why the economy crashed

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