Jim keeps sending me links to articles on the ARM crazy in mortgages. I think he is thanking his lucky stars I spent five years earning pennies in a mortgage company. If you haven't bought a house, you are thinking about it, or thinking about refinancing, read this article....
http://biz.yahoo.com/weekend/mortgagepain_1.html
ARM mortgages are like putting your home on red on the roulette wheel. If a broker talks to you about a 5/1, 3/1, 7/1 or any term that will adjust. RUN AWAY! If you can't afford the following, you can't afford the home:
- Mortgage payment (principal and interest) - $1500
- Property Taxes (annual amount divided by 12) - $5000 / 12 = $416.66
- Home Owners policy (annual divide by 12) - $600/ 12 = $50.00
- association fees if applicable
Monthly PI &TI = $1966.66
Now take your Monthly Gross Income. For a couple or individual that grosses $95,000.00 a year, this would be: $7916.66
Take the Monthly PITI $1966.66 and divide it by the Gross Monthly income $7916.66
1966.66/7916.66 = .248 or 25%. If this number is higher than 28%, walk or run away(at least you will burn calories) . Personally, I like to have it less than 24%.
This means that 25% your gross income is going to pay for your home. Uncle Sam and Cousin State are going to take another 25% or more with income taxes. Hopefully, you are putting another at least 10% way into a 401K or similiar investment vehicle. So that is 60% of your gross income... with what is left ($38,000 or $3166 a month), please pay for:
- Electricity
- Heat or A/C
- Water/Sewer
- Telephone, Cell Phone, Internet
- Cable TV
- Cars- Payment, Insurance, Gas, garage bills
- Food - Grocery Store and meals on wheels (eating out or delivery)
- Medical Insurance
- Life Insurance
- Credit Card Bills - Major and Store cards (more than just the monthly minimum payment)
- Student Loans
- Vet Bills/ Animal food
- Vacations
- Misc - hair cuts, manicures, clothes, shoes (we know my thoughts on this), computers
- Repairs and improvements to said home including landscaping and lawn cutting.
Are you depressed yet? So the next time the mortgage officer tells you what you can afford... come with your own knowledge in hand ... they are going to make money off you. Read the fine print and the article attached first ...
