Wednesday, September 30, 2009

"You can't fix stupid" - update

Filling in the information gap from a previous post regarding a CNN profile of buyers using the tax credit. Buyers Mike Spence and Noel Delisle mortgage has been recorded. I was hoping that the loan would show a significant down payment or something else that would make the purchase not seem so tenuous. Well, apparently, it is worse than I thought. Even though the FHA maximum limit is $729,750 the loan has been recorded for $736,415. I'm guessing closing costs or the Mortgage Insurance Premium was rolled into the loan.

The tax credit phases out over $150,000/yr in income and is completely lost after $170,000/yr. So we have a reasonable upper limit of salary for the couple, a "Level 3 Hair Designer" and a Crane operator for a tree removal company. The article mentions a 5.5% interest rate which gives us a ~$4,180 /mo for principal and interest. Property tax rate of 1.25% gives ~$781.00 / mo in property taxes. ~$70 / mo for insurance. The monthly MIP is 0.5% a year of the original loan balance which comes in at ~305 /mo for insurance. At $170,000/yr income their front end debt to income ratio would be a whopping 37.4%. At $150,000/yr income their front end debt to income ratio would be 42.4%!

This is not a loan that should be made. The debt to income ratios are insanely high. It seems like their future prospect for higher income is much lower than a low income couple with similar debt ratios but their future prospect for lower income is higher. And on top of it is the very real prospect of depreciation. Is it any wonder that people believe we will be bailing out FHA? Are we really helping this couple buy a home or just throwing them under the runaway bus to help slow it down?


Anonymous said...

To add to there misery, I just renewed my CA home insurance today at $250/mo. They may not pay that much but they won't pay $70 either.

longhorn said...


I am not too surprised though. I called my Credit Union to see what amount I could be pre-approved and it came out to be $680k.

No way in hell I could afford a $680k home unless all I aspired to do was make payments on that home.

longhorn said...

I should correct that, $680k mortgage.