Loan experts chime in please

[churchmouse]

Good for him. But the point is how many OTHERS are doing well based on HIS advice? Dave Ramsey has a pretty tall stack of testimonials for his methods. I'd like to think someone criticizing him has a better way in mind.

I am no fan of Ramsey either but not in a seriously negative way. His plan will work if someone is dedicated enough to apply it. And in this world it does take some serious dedication. I am apparently not that dedicated....

 

[churchmouse]

I dont understand the mindset that we have in this country with debt. Some people think because they qualify for more they MUST spend that amount. Well why not spend/borrow UNDER what you qualify for and have a comfortable life and alittle security if you have an emergency? If you miss one paycheck and are gonna be sideways in life because you've borrowed so much then you are doing it wrong. In my humble opinion. I'm not rich, I'm not successful, im just a regular dude but that's my opinion.

Agreed.
In this consumer based economy so many get sucked into the I want it all and I want it right now.
We are not rich. We have always worked under the premise that if you want more you have to get after it harder. 40 hours at a good job will support but the extras are hard to come by. If I wanted more then I found other revenue streams outside my job. That worked for us. It is tough at times but again, nothing is free.

 

[EricG]

I am no loan/mortgage expert but that's a hell of a task for someone only making 48k a year. Even if that was net income.

He cannot afford it.



Sent from my VS810PP using Tapatalk

 

[lovemachine]

So my wife and I have 2 babies now. Both miracles . And we live in a 2-bedroom ranch home. Small, but cheap living. I have lots of equity in the home, and decided to see about a loan to add on a bedroom and bathroom.

The lender I used, also gave us an estimate to purchase a home as well. He said we were approved for a $300k loan. I told him there’s no way I can afford those kind of payments.
His reply, only 10% of his clients admit to that. And those are the smart ones. He told me there WILL be another recession because of what people are doing.

Which I don’t understand why bankers/lenders are letting this happen again.

As for us, I can’t get ANY contractor to come out and give me an estimate. None at all.

So either I learn how to do an addition myself, or we will move or just stay here where we are in this cramped little house and have a little money in our pocket.

 

[bwframe]

Do we have a photo of the ex-wife that makes the majority of the money?

 

[sparky32]

When we bought our first home on one income of 80k at the time I was scared to do 175k let alone over 300k that seems like a very poor idea on his part.

 

[Libertarian01]

TriggerTime said it best, which follows the Dave Ramsey philosophy, for the friend to live below his means for now.

It isn't the exact details of Dave Ramseys commentary I agree with, but it is the overall philosophy. Debt is overall bad. It should be avoided. It can be used for something major, like buying a home. Pay off your debts, then stay debt free.

All of which is true. Debt incurs interest payments, and saddles the debtor with monthly expenses. So not only does the debtor pay more for a product through interest, they hurt themselves by reducing monthly financial freedom. By building up an emergency fund to avoid debt due to problems, and by saving money to purchase larger items, one saves money over the long run, allowing for more freedom, independence, and enjoyment of life.

I am not a rabid follower, but I do believe that most all debt is bad. Not all, but most.

Getting back to the OPs buddy, I truly do understand his desire to hold onto something familiar and in his comfort zone. I get that. However, I do believe that living below his means will allow him greater freedom and enjoyment of life. He just might not see that today.

Regards,

Doug

 

[Hohn]

The two points of Dave Ramsey that are most valuable-- and hardest to disagree with-- are:
1) Debt is bad, all else being equal.
2) Ratios matter.

It's the second point that needs emphasis. A 300k house might be well below the means of someone or far beyond someone else. And judging by what a lender will give you is NOT wise. A lender will sign you into servitude forever, more is better, because they are issuing a "compliant" mortgage-- meaning, it complies with Federal Housing Loan standards-- meaning it is Federally guaranteed and there's essentially no risk to the lender. And since they aren't going to lose money, why NOT loan you as much as possible? They can squeeze the golden goose until it dies and then still get the eggs.

Some guidelines about what is or isn't affordable are useful. They are inherently arbitrary, though. Is a mortgage that's 40% of your take home too high? Probably. But if your take home is still like 120k and your payment is high because on 15 years or less, then it might be OK after all.

But a mortgage that is only 25% of your take home might be too much for someone else if they are netting only 40k a year and the mortgage is 30 years.

It's not just the share of the pie that goes to mortgage, or the size of the pie slice. It's about the amount of pie left over after you pay that mortgage. If you have a massive mortgage payment, you will have no life. Maybe that's by design because you are paying off that house super aggressively and will have a paid-for house in no time. Or maybe you are in financial bondage with no end in sight.

After buying more house than we could afford at the time on a 30y, we refinanced to go down to 15 years at a 2.75% APR. It's saving a ton of money long term. But it means I have way less free income than I should, since my income overall is pretty decent for a single income household.

But I'll have a nice house paid for before I'm 50, so there's that.

 

[JettaKnight]

Let's not go into another, "Good Dave, Bad Dave" argument again.

Sigh,

The lender I used, also gave us an estimate to purchase a home as well. He said we were approved for a $300k loan. I told him there’s no way I can afford those kind of payments.
His reply, only 10% of his clients admit to that. And those are the smart ones. He told me there WILL be another recession because of what people are doing.

Which I don’t understand why bankers/lenders are letting this happen again.

Because of greed, but I'm sure you really knew this. Plus, mortgage brokers are probably pretty evil too. Those folks get paid upfront, right away and don't care if you default (economically speaking). And WTF do those brokers do that I can't do with twenty minutes of phone calls and internet searches? Seriously - someone explain to me why companies like Ruoff exist and make money.

And we still cling to the "American Dream" of home ownership and look down our noses at renters. And the rumors of the death of McMansions are greatly exaggerated.


And it's likely to get worse as we've started to ignore the lessons from before:

https://www.npr.org/sections/money/2018/06/29/624806713/dungeons-dragons-balance-sheets

TL/DR: A large number of banks won't be required to participate in stress tests.

The two points of Dave Ramsey that are most valuable-- and hardest to disagree with-- are:
1) Debt is bad, all else being equal.
2) Ratios matter.

Yeah, that's a fair set of statements.

It's the second point that needs emphasis. A 300k house might be well below the means of someone or far beyond someone else. And judging by what a lender will give you is NOT wise. A lender will sign you into servitude forever, more is better, because they are issuing a "compliant" mortgage-- meaning, it complies with Federal Housing Loan standards-- meaning it is Federally guaranteed and there's essentially no risk to the lender. And since they aren't going to lose money, why NOT loan you as much as possible? They can squeeze the golden goose until it dies and then still get the eggs.

This is a significant problem that neither the Democrats nor Republicans want to touch. It's why I said the 30 year mortgage is an abomination. What person in his right mind would ever offer to loan someone money for 30 years at 4%?! Just imagine in ten years the interest rate is 8%, but your stuck getting 4%... Then factor in the risk... foreclosure and resale isn't profitable... especially at 4%... and when you've loaned out way more money than prudent...

Then look at how much interest the borrower has to pay over the life of a 30 year loan...


https://www.npr.org/sections/money/2011/01/14/132940442/the-friday-podcast-the-frankenstein-mortgage

 

[DCR]

In the good old days, i.e. in another lifetime when I was a RE broker, the cardinal loan rules were:
(1) A mortgage = double your gross income.
(2) A monthly payment PITI < 33% of your paycheck.
Yeah, we're headed for yet another 2008.

 

[churchmouse]

In the good old days, i.e. in another lifetime when I was a RE broker, the cardinal loan rules were:
(1) A mortgage = double your gross income.
(2) A monthly payment PITI < 33% of your paycheck.
Yeah, we're headed for yet another 2008.

My spouse was a loan officer for 15 years before the insanity of 2008. She was not one to push money. If the figures did not bear out she would not do the loan. Just would not do it. Everyone else would. She was called on this a few times even though she was a top producer. She can still look in the mirror and be at peace.

 

[AtTheMurph]

In the good old days, i.e. in another lifetime when I was a RE broker, the cardinal loan rules were:
(1) A mortgage = double your gross income.
(2) A monthly payment PITI < 33% of your paycheck.
Yeah, we're headed for yet another 2008.

And those are at the top end!

My God, I just cannot understand why people are so stupid as to want to spend every cent they make to then skrimp to make the bills each month.

I am in the financial services business and acquired a client who had won one of the Indiana lottery $1M jackpots years ago (50k/yr for 20yrs). Husband and wife made a combined 50k/yr at the time and were young - probably late 20s, early 30s.

Designed what I thought was a really good plan for them. Increase their spendable money but save the majority of the 50k/yr for 20 years. Had it figured that they could work 20yrs then keep the 50k going for the rest of their lives (subject to market returns, sticking to the plan, interest rates etc. Mostly safer investments.)

By the end of year one of plan wife had bought a 35k car and gone part time. Year two she bought a big house. Year 6 they declared bankruptcy.

 

[HoughMade]

No expert here. All I have is my own experience.

When HoughMade about the kind of money mentioned in the OP, he bought a house that cost $95,000. That was comfortable.

Almost 20 years later, HoughMade does a smidge better than that...

...he still would not buy a house for that amount (granted, he pays out-of-pocket for his kids' college).

Do his​ kids plan to go to college?

Oh...and I have questions, like: what was he grossing $48k when he and his wife were living in that house together? If so, what was she making? I'm curious about how other people think.

 

[WebSnyper]

And those are at the top end!

My God, I just cannot understand why people are so stupid as to want to spend every cent they make to then skrimp to make the bills each month.

I am in the financial services business and acquired a client who had won one of the Indiana lottery $1M jackpots years ago (50k/yr for 20yrs). Husband and wife made a combined 50k/yr at the time and were young - probably late 20s, early 30s.

Designed what I thought was a really good plan for them. Increase their spendable money but save the majority of the 50k/yr for 20 years. Had it figured that they could work 20yrs then keep the 50k going for the rest of their lives (subject to market returns, sticking to the plan, interest rates etc. Mostly safer investments.)

By the end of year one of plan wife had bought a 35k car and gone part time. Year two she bought a big house. Year 6 they declared bankruptcy.

Yep, tough to reduce income and increase spending at the same time without consequence (and they should have been able to see that from the plan provided).

 

[churchmouse]

And those are at the top end!

My God, I just cannot understand why people are so stupid as to want to spend every cent they make to then skrimp to make the bills each month.

I am in the financial services business and acquired a client who had won one of the Indiana lottery $1M jackpots years ago (50k/yr for 20yrs). Husband and wife made a combined 50k/yr at the time and were young - probably late 20s, early 30s.

Designed what I thought was a really good plan for them. Increase their spendable money but save the majority of the 50k/yr for 20 years. Had it figured that they could work 20yrs then keep the 50k going for the rest of their lives (subject to market returns, sticking to the plan, interest rates etc. Mostly safer investments.)

By the end of year one of plan wife had bought a 35k car and gone part time. Year two she bought a big house. Year 6 they declared bankruptcy.

Like so many other things spending is a drug. It seriously is.

 

[jkaetz]

Dave Ramsey silliness? Do tell YOUR system for financial independence?

Silliness == all debt is wrong.

This. In general he gives good advice, but when it comes to housing I can't disagree more. You could try to save for 30 years and buy the house you always wanted, or you could take advantage of your good credit and enjoy it 30 years earlier.

Most debt is for things that depreciate. Housing in general appreciates. If it is appreciating faster than the interest you're paying on it you're $$ ahead and you get a nice place to spend the majority of your life. Debt used responsibly can be very beneficial. That said I know plenty of people can't be responsible with their debt and don't look farther ahead than the next month or paycheck. Lenders will lend far more than most people can pay back. While some will blame the lender, I tend to blame the people who don't take responsibility for their own financial well being.

Disclaimer: I'm no financial adviser and don't usually give advice, only lay out facts. People are free to make their own decisions.

Like so many other things spending is a drug. It seriously is.

This too.

 

[JettaKnight]

And those are at the top end!

My God, I just cannot understand why people are so stupid as to want to spend every cent they make to then skrimp to make the bills each month.

I am in the financial services business and acquired a client who had won one of the Indiana lottery $1M jackpots years ago (50k/yr for 20yrs). Husband and wife made a combined 50k/yr at the time and were young - probably late 20s, early 30s.

Designed what I thought was a really good plan for them. Increase their spendable money but save the majority of the 50k/yr for 20 years. Had it figured that they could work 20yrs then keep the 50k going for the rest of their lives (subject to market returns, sticking to the plan, interest rates etc. Mostly safer investments.)

By the end of year one of plan wife had bought a 35k car and gone part time. Year two she bought a big house. Year 6 they declared bankruptcy.

Shocked.

 

[JettaKnight]

So, longbow, the problem with expensive houses is that they have expensive upkeep.

Heating & cooling is more, roofing is more, insurance is more, sliding is more, tax is more, utilities is more...


All of those things need to be considered by your friend. Is you just making payments, then you're not saving for the next repair.



And to piggyback on jkaetz, we bought a bigger house than we should have, but all the cheaper houses looked like the same old **** to me, and mortgage rates were lower than now... I looked at it as an investment with immediate benefits.

We bought with just a 3% down payment on a 15 yr loan - I'm shocked they would do that, but we have a credit score >830. We sold our other house two months later and rolled the money into the new mortgage so the total payment period would be about 12 years.

Our PITI is about 14% of gross income.

 

[jkaetz]

We bought with just a 3% down payment on a 15 yr loan - I'm shocked they would do that, but we have a credit score >830. We sold our other house two months later and rolled the money into the new mortgage so the total payment period would be about 12 years.

Sounds like you have the same problem as my wife and I. Lenders almost literally throw money at us to get us to use it. Not too long ago one of our credit cards sent us the 0% interest checks for 12 months and no transfer/purchase/usage fee. I promptly wrote it to myself for the credit limit and stuffed it in the bank just in case we wanted to pay for something over time. When the promotional period was over back to $0 balance it went. We didn't really need it but since they weren't going to charge us for it I figured I might as well use it even if only temporarily.

 

[HoughMade]

Imagine my irritation to learn that my wife has a 3 point higher credit score than I do...and she has no source of income...other than me.

And yes, debt properly managed can be a great tool.

But keep in mind those who are coming to Ramsey for help. You don't offer half a glass of wine to an alcoholic. You encourage them to abstain completely.