personal finance planning

Shara Says:

January 12th, 2010 at 9:04 am

For those of you who want to know what extra payments on your loan will do go to bankrate.com. Go to their calculator section (at the top above the tabs) and look for ‘amortization calculator’. It is great to see what theoretical loans would cost, but if you know how to use it you can apply it to any existing loan as well. If you want to know how to input an existing loan just ask and I’ll walk you through it. You need the balance, interest rate, and payment or remaining time on the loan.

@Max

We DO have a program to help poor people buy homes. It’s called the FHA (Federal Housing Administration). It is administered by Fannie Mae and Freddie Mac, which are two quasi-government agencies. And recent events have shown us why they don’t work.

First let me explain, FHA loans are typically set at a price a little bit above the going rate for “great credit” people. But they are, sometimes significantly, lower than those for which most people qualify. They have significantly lower down payment and up front cost requirements and can bend some rules (such as allowing sellers to pay for closing costs, or using a third party’s money for down payment). This is a problem for two reasons: Without requiring a down payment the risk of a house being worth less than is owed is a significant risk, and people who can’t manage enough financial discipline to scrape together a down payment often don’t have the financial discipline to faithfully make their house payments.

In an ideal world people who are upside down on their mortgages would suck it up and keep paying as long as they could afford it. The reality is that many people would rather walk away, hand over the keys, and take the hit to their credit that bankruptcy will cause. The problem with a poor person as a credit risk is the same reason you want to help them: they have nothing to take away. Therefore you have no leverage to sue them and make them pay you what they owe you. I am a landlord and one thing I have learned is that people really want to do the right thing, but they have an infinite number of ways of justifying to themselves that something dishonest is okay. I had one lady argue that I shouldn’t have evicted her because her HUSBAND was the one who wasn’t paying the rent. I used to think that kind of convoluted logic was crazy, but I have found most people are more than capable of twisting ‘right’ to magically be whatever they want at the time.

Second, I know more than a handful of poor people. Most of the people I know who are perpetually poor are so because they make really bad choices. Sad to say, many of them do drugs that precludes them from being successful. The middle class (both upper and lower) people I know who are scraping by and have no money to buy a house are doing so because they can’t manage money. These are the people who break a leg and have to take a week off without pay and suddenly can’t make their bills. Not because they don’t make enough, but because there is nothing there left at the end of the month in case of emergency. If it’s there it’s spent.

I don’t want any of these people as homeowners. You can’t know until you own a house what a big responsibility it is. Everyone I know who has bought a house has had a learning curve much like a new parent, of “This is MY responsibility?!” and “I had no idea how much this would cost!” Even if you plan for it, you don’t understand until the bill’s in front of you.

As far as poor people having housing, there are a number of housing assistance programs available, the most prominent being section 8. Section 8 is a program that pays a percentage of the rent for a poor person, depending on the size of the family and how poor they are. I have talked to tenants that were 50% covered, a neighbor of mine was 100% covered, and I know people on the waiting list. The waiting list in typically quite long because there are a lot of people who want help paying their bills.

And this brings us to the crux of the matter, which is how much assistance to offer. The reason many of us are anti-socialist is because while it is great to want everyone to be happy, healthy, well fed, educated, and have a nice house, these things cost money. It costs me nothing to allow you free speech, but if you want food someone has to produce it and that person must be compensated. And if the compensation is coming from me instead of you what is your motivation to produce anything for yourself? You know the saying about giving a man a fish versus teaching a man to fish?

I am with Kevin that there are things that our government is designed to do: national defense, freeways, international treaties. And things that our federal government is NOT designed to do. Housing assistance is one of them. But that doesn’t mean I think no one should get an assistance, I just don’t think it is the job of the federal government, because a bureaucracy of that size has a really hard time administering such benefits, programs of that size are just asking to be cesspools of waste, fraud, and abuse, and as the concerns lately about INFLATION (remember that word? ) show, the federal government can print their own money if they get in trouble.

I think there are people who deserve housing assistance: The severely mentally retarded, people with mental illness, people with severe physical limitations, etc. But if you can’t BUY a house on your own then you shouldn’t be doing it. You either don’t make enough to survive the ups and downs of the market, or you aren’t mature enough to own a house. In this case there is a GREAT alternative: renting.