There’s no denying it’s harder to borrow money today than ever before. Banks and mortgage lenders have all sworn on television and before congress that they’ve upped their underwriting standards. NINJA (No Job, No Income, No Assets – No Problem) Loans are a thing of the past! No longer are we going to put people into home mortgages without regard for their ability to pay.
But what about their ability to pay for anything else?
The most common mortgage issued today is the FHA 3.5% down program. Almost anyone can qualify. It’s a great program designed to allow people to buy a house with almost no money down. Add to it the $8,000 tax credit for first time home buyers or the $6,500 credit for move-up buyers and who needs a down payment? That’s a great program is you’re an investor with lots of cash but not so good if you’re a family who borrows the money because they CAN’T AFFORD a real down-payment. The people applying for and getting these loans are the people who don’t have any money (see NINJA above).
Now what happens?
They get into their cookie-cutter track-home of their dreams and then have no money to repair the air conditioner or do landscaping. Or what happens if the truck breaks down and now the decision is: pay the mortgage or pay to fix the truck so we can get to work. Or worse, there’s a medical emergency that both impacts your ability to work and costs lots of money.
How much cash do you have access to?
According to the Personal Risk Assessment and Risk Literacy Survey, conducted by research firm TNS with academics from Harvard Business School and Dartmouth College, almost half of 2,148 consumers surveyed said they couldn’t come up with $2,000 within a month in a crisis. That includes using all sources of funding: savings, family, friends, credit, etc.
What’s your emergency reserve look like?
Before you plop down 3.5% for that tract-home of your dreams or sign up for that $738 car payment, ask yourself: “do I have enough in reserves that a routine set-back or minor emergency isn’t going to bankrupt me?”
If not, take the pen out of your hand and step away from the table. You found that “perfect” house or car without a whole lot of looking, when you’re ready it will still be there and it will be much better knowing you can really afford it.
The Bank Slayer
TNS Report: http://www.tnsglobal.com/news/news-97CC22ABE14E4373B863F0734D99121A.aspx
