10.9% interest!?!?!?! Holy smokes.
This still seems very predatory to me. Our first home was through a subprime lender and was a 2/1 ARM at 8.1% interest. Yes, the interest rate was lower because it was an ARM but it was back in 2004 when rates for those with good credit and a 30 year fixed mortgage was higher than it is now.
I've waited 7 years since the foreclosure of our first home to get my credit up to par before trying again. The interest rate on my mortgage is 4.125%. I'm glad I waited. 10.9% interest REALLY drops your home affordability by A LOT. Our new home that we closed on in Feb would not be even remotely close to affordable with 10.9% interest. It is these high interest rates coupled with high DTI that led to the crash. Our DTI was so high due to the interest, no one would refinance us. I would have felt a little better about the article if they capped the DTI, but it looks like folks with 47% DTI can be approved for these awful mortgages. When I was approved for a subprime auto loan back in 2008, the lender capped my car payment at $400 per month max. Same thing should be done for subprime mortgages. I highly disagree with subprime mortgage lending. The purchase price of a home is way too large to be hiking up the interest rate like that. Subprime means you pay a larger amount of interest and fees for a loan. But what the subprime industry doesn't understand is that folks with bad credit should be the LAST ones to have to pay more for a mortgage, especially if the payment isn't capped to something reasonable. Folks with bad credit also often times make bad decisions (I have been there so I know). Anyone should know that after being turned down multiple times for something and then approved, the brain tells the mind that it can't pass this up as I will be able to really get a house now and not have to wait. People with bad credit often times get excited over an approval even though the terms are outrageous. Often times there is a small quiet voice telling the person to pass this up and wait but the big voice says, I'm approved! I will show those other guys I can get a house even though disposable income and reserves will be low because of the high interest and large downpayment.
We will see how many defaults and foreclosures arise out of this. The part of the article saying, we plan to refinance in a year. That is what we planned too but because we had no other credit reporting besides the mortgage (could not get approved for just about everything except that stupid mortgage), our scores were still low after a year and DTI was too high to refinance.
Folks that come on here with low credit scores desperate for a mortgage loan, need to truly just wait. You want banks to compete over you instead of having only one Broker in the town or state that wants to approve you. If you don't obsess over a mortgage and just live your life and garden your credit, you will be fair game for many lenders out there before you know it.
I personally believe having good credit is paramount as a homeowner. You may disagree but I have compared my successes as a homeowner with good credit and bad and I have been able to accomplish a lot more for the home with good credit. I couldn't do nothing for our first house with bad credit and a high mortgage payment but live in it while trying to stay above water.
The part of the article that states he had to buy a home so his 5 year old could go to a good school is nothing more than a excuse for instant gratification. But will they still be satisfied with their decision two years from now? I rented from when my son was 7 months old to age 7. He went to good schools in a good neighborhood. Mommy had bad credit and renting was the only financially feasible and sound option.
Some folks think they will be at a 580 score for the next 10 years and their only hope out is a subprime mortgage. That couldn't be further from the truth. If you take the time to garden your credit and watch it grow, you learn some very valuable things. Take the time to learn how to use credit cards the right way as they can be very powerful and important tools to a homeowner. As a homeowner, the last thing you want to be afraid of is credit cards because you haven't learned to use them properly. Lenders want to see revolving credit history for a reason. What good is a house when you get denied for security system install or other related house things that require good to excellent credit? What happens if something major breaks that has to be taken care of right away for the house to be livable? Most often, you have to pay a deductible for your insurance to kick in. What if you just paid the mortgage and are waiting for the next pay day? What if your savings will be too low after paying the deductible? In this instance and instances where you have a lot savings, using a credit card for the deductible would free up your income and protect your savings and earn you $10-$20 cash back. Pay it off quickly over a few months with 0% interest and your savings is still intact despite an emergency and you earned pure cash just for using the rewards card for the transaction. Save some of your monthly budget to pay for things with 0% APR over a few months and you will see there are many things you can purchase for the home in a year without breaking the budget through the use of credit cards. I have one card that is only used for nonrecurring expenses and i have budgeted $110 a month towards this card. when it is paid off, i can go shopping for fun things without breaking the budget nor taping into savings. There are many other ways credit cards are very useful. Dare I mention that homeowners that use rewards credit cards for bills and everyday expenses earn on average $300-$500 in cash back a year? Your trip to Lowes can cost a lot more without a credit card. If you spend $300 at Lowes using cash, you paid $300. If you come in there with a Discover It card that earns 5% cash back, you paid $285. Don't say it is just $15 because there are rewards cards that earn 1-5% cash back on gas, groceries, and utilities. When you compare all of these charges on credit against paying cash, you will see that the person that has credit cards pays significantly less on everyday items and bills. And when you pay in full, no interest is charged. This saves the homeowner a lot of money as cash back can be redeemed as a check or direct deposit to transfer to savings. By using credit cards the right way you have avoided interest, added to savings after a major expense, and added some new home decor, etc. that wouldn't have been possible until much later with cash.
I don't agree with subprime mortgages at all still. I waited. Never thought my score would reach 700 but it did and I obtained a few more credit cards to learn how to unleash their power as a homeowner versus be subjected to debt because I didn't use them properly. There is so much more to homeownership than just the mortgage payment if you want to be truly successful.
I've waited 7 years since the foreclosure of our first home to get my credit up to par before trying again. The interest rate on my mortgage is 4.125%. I'm glad I waited. 10.9% interest REALLY drops your home affordability by A LOT. Our new home that we closed on in Feb would not be even remotely close to affordable with 10.9% interest. It is these high interest rates coupled with high DTI that led to the crash. Our DTI was so high due to the interest, no one would refinance us. I would have felt a little better about the article if they capped the DTI, but it looks like folks with 47% DTI can be approved for these awful mortgages. When I was approved for a subprime auto loan back in 2008, the lender capped my car payment at $400 per month max. Same thing should be done for subprime mortgages. I highly disagree with subprime mortgage lending. The purchase price of a home is way too large to be hiking up the interest rate like that. Subprime means you pay a larger amount of interest and fees for a loan. But what the subprime industry doesn't understand is that folks with bad credit should be the LAST ones to have to pay more for a mortgage, especially if the payment isn't capped to something reasonable. Folks with bad credit also often times make bad decisions (I have been there so I know). Anyone should know that after being turned down multiple times for something and then approved, the brain tells the mind that it can't pass this up as I will be able to really get a house now and not have to wait. People with bad credit often times get excited over an approval even though the terms are outrageous. Often times there is a small quiet voice telling the person to pass this up and wait but the big voice says, I'm approved! I will show those other guys I can get a house even though disposable income and reserves will be low because of the high interest and large downpayment.
We will see how many defaults and foreclosures arise out of this. The part of the article saying, we plan to refinance in a year. That is what we planned too but because we had no other credit reporting besides the mortgage (could not get approved for just about everything except that stupid mortgage), our scores were still low after a year and DTI was too high to refinance.
Folks that come on here with low credit scores desperate for a mortgage loan, need to truly just wait. You want banks to compete over you instead of having only one Broker in the town or state that wants to approve you. If you don't obsess over a mortgage and just live your life and garden your credit, you will be fair game for many lenders out there before you know it.
I personally believe having good credit is paramount as a homeowner. You may disagree but I have compared my successes as a homeowner with good credit and bad and I have been able to accomplish a lot more for the home with good credit. I couldn't do nothing for our first house with bad credit and a high mortgage payment but live in it while trying to stay above water.
The part of the article that states he had to buy a home so his 5 year old could go to a good school is nothing more than a excuse for instant gratification. But will they still be satisfied with their decision two years from now? I rented from when my son was 7 months old to age 7. He went to good schools in a good neighborhood. Mommy had bad credit and renting was the only financially feasible and sound option.
Some folks think they will be at a 580 score for the next 10 years and their only hope out is a subprime mortgage. That couldn't be further from the truth. If you take the time to garden your credit and watch it grow, you learn some very valuable things. Take the time to learn how to use credit cards the right way as they can be very powerful and important tools to a homeowner. As a homeowner, the last thing you want to be afraid of is credit cards because you haven't learned to use them properly. Lenders want to see revolving credit history for a reason. What good is a house when you get denied for security system install or other related house things that require good to excellent credit? What happens if something major breaks that has to be taken care of right away for the house to be livable? Most often, you have to pay a deductible for your insurance to kick in. What if you just paid the mortgage and are waiting for the next pay day? What if your savings will be too low after paying the deductible? In this instance and instances where you have a lot savings, using a credit card for the deductible would free up your income and protect your savings and earn you $10-$20 cash back. Pay it off quickly over a few months with 0% interest and your savings is still intact despite an emergency and you earned pure cash just for using the rewards card for the transaction. Save some of your monthly budget to pay for things with 0% APR over a few months and you will see there are many things you can purchase for the home in a year without breaking the budget through the use of credit cards. I have one card that is only used for nonrecurring expenses and i have budgeted $110 a month towards this card. when it is paid off, i can go shopping for fun things without breaking the budget nor taping into savings. There are many other ways credit cards are very useful. Dare I mention that homeowners that use rewards credit cards for bills and everyday expenses earn on average $300-$500 in cash back a year? Your trip to Lowes can cost a lot more without a credit card. If you spend $300 at Lowes using cash, you paid $300. If you come in there with a Discover It card that earns 5% cash back, you paid $285. Don't say it is just $15 because there are rewards cards that earn 1-5% cash back on gas, groceries, and utilities. When you compare all of these charges on credit against paying cash, you will see that the person that has credit cards pays significantly less on everyday items and bills. And when you pay in full, no interest is charged. This saves the homeowner a lot of money as cash back can be redeemed as a check or direct deposit to transfer to savings. By using credit cards the right way you have avoided interest, added to savings after a major expense, and added some new home decor, etc. that wouldn't have been possible until much later with cash.
I don't agree with subprime mortgages at all still. I waited. Never thought my score would reach 700 but it did and I obtained a few more credit cards to learn how to unleash their power as a homeowner versus be subjected to debt because I didn't use them properly. There is so much more to homeownership than just the mortgage payment if you want to be truly successful.
Cards: Orchard Bank ($1100) | Cap1 Cash Rewards ($2500) | Chase Freedom ($1000) | Best Buy ($2500) | Discover It ($1000) | Barclay Rewards ($2500) | Current scores: EX FAKO: 684, CK TU: 649, FICO EQ: 680, FICO TU: 698, FICO EX: 658 Happy Homeowner Since 2/6/13! 
Last App: 4/5/13 Gardening until July 2014
I agree with the learning part, rebulding your credit teaches you so much. I have friends and family that look to me with their credit improvement questions. I also like the fact of knowing after I close, with all my hard work, I should have no problem getting some prime cards and closing my secured cards.
Starting Score: 492-TU04, 480-EX FICO V2, 467-EQ Beacon 5 (Via Mortgage PreQual March '12)
