Why do people take out Mortgages they can't afford?

[Seirith]

The notion that a new car is more reliable than a used vehicle is just wrong. New cars are always a bad investment. In my area, I can pick up a late 00's or early 10's Prius, which is a super reliable vehicle as well as being great on fuel economy, for 6k-9K. I would definitely consider that a luxury expense as well, as cheaper and equally reliable vehicles can be found for much less.
A new car is not going to help you secure employment any more than a used one. A car is a tool to move you from point A to point B. It doesn't need to be so wastefully luxurious.
I'm sorry but it is almost never a good option to finance a new car, especially if that person already has debt they need to be paying off.

I have had nothing but bad luck with used cars and often end up spending a lot more fixing things than I would have if I had bought a new car with a warranty. I stopped buying used cars 3 cars ago and only buy new now and neither can has had any issues. My first new car lasted a long time, until someone rear ended it and it was not safe to fix. Current new cars are now 6 years old ( My husband drives this car,it was originally mine, but he got it when we wanted an SUV because I do more driving than he does) and mine is 3.

[DSRilk]

Naw, he's right. If you increase taxes it will force a lot of people to sell which will drive prices down. But I'm of the opinion that it would be a bad thing, since it would mostly effect retired folk on fixed incomes.

They don't keep prices down, they just change how much house people can afford. TX has very low property taxes. VA has much higher property taxes. I don't see a ton more people renting out here. I just see them buying houses further out of the city or buying townhouses, duplexes, and smaller single family homes. I mean sure, if you suddenly change the tax laws out of thin air, you could botch the market badly enough to make some people sell, but that doesn't hold for very long. What has a much more profound affect on the housing market is mortgage rates. Screw with those, and you can drastically affect whether people buy or rent.

[Seirith]

Depending on the area, buying a house could be cheaper than renting. In San Diego you could still get a nice 3 bedroom/2 bathroom house in a nice neighborhood for around 400 - 450k. With 20% down & good credit you can still get around 4% APR which puts your monthly payment at around 1,600 for a 420k house. With home owner insurance, home owner warranty (which cover appliances, HVAC, plumbing, sewer, electrical, etc.), earthquake insurance and property tax you are looking at just over $2,000 per month. I doubt you can find any 3-bedroom apartment in a decent area for under $2,500 in San Diego County right now. Actually, $3,000 may be a more realistic number.

Same as in my area of NY. My house and taxes is just under $1,000 a month, 4 bedroom, 3 bath, 1800 sq ft, 1/3 of an acre corner lot. A 1-2 bedroom 1000 or less sq ft apartment is often that much or more. My former coworker and her boyfriend paid $1500 for a 2 bedroom 1 bath apartment, not including utilities or other amenities.

[rayden54]

Why do people take out a loan/finance a car when they don't have the money to just buy a vehicle? (Hint: having to finance a car means you can't afford it.)

Where I live, no having a car means not having a job, not going to the store, etc.

All good. It's a lesson of life that "by nature" you won't get anything in the long run you don't deserve. Squirrels have to collect nuts for the winter and they can only eat what they collected/earned.

Spend all summer gathering nuts and then have the tree you stored them in get struck by lightning. "By nature" plenty of people get what they don't deserve-both good and bad.

[zmp]

Because those people didn't read The Art of the Deal.

[Bodakane]

They changed their contract with you without your consent? Is that what happened? If so, that should def be illegal!

No they didn't change my contract. They changed the extra requirements in what they will and won't accept from an insurance policy. It's built in the contract that they can chnage these things.

[Total Crica]

No they didn't change my contract. They changed the extra requirements in what they will and won't accept from an insurance policy. It's built in the contract that they can change these things.

Oh, so you knew they could change it before you consented. Ok, nvm then. Thanks.

[zEmini]

If you think about it logically, you should only be taking out a loan if you can make the payments. If you are cutting it so close that if rates rise, you can't make payments, then don't take out a mortgage.

Whatever happened to restraint and living within your means?

If you can't afford to purchase a home then rent or move elsewhere.

Beacuse people are dumb or ignorant.

Same can be applied for college loans. Why do millennials take out a massive loan for a Liberal Arts degree?

[zenkai]

That's not the norm.

Banks and lenders gamed the system. I had a mortgage for a $1000. I could afford it just fine. The lender, Chase, changed their internal policies after the first year and said my current HO insurance was no longer valid. They didn't notify me ahead of time, just raised my mortgage to $1500. As soon as my insurance policy was no longer valid to them, they started me on one they chose. It was $500/month. Now I had to make that payment or I'd take the hit and my rate would go up. To get new insurance, I'd have to come up with a down payment which was now impossible because I'm spending $500 more a month. This all happened when gas prices skyrocketed in 06-08, so everything cost more from travel to groceries. Every month they gave me a new person to deal with who promised to help then next month start over again.

After a year, I walked away. I had no choice.

My story is not unique either, as I was included in a class action lawsuit against them, JP Morgan, and a host of others, without me even asking. The case was settled and my debt was forgiven and I got a couple of checks.

500 a month is definitely over priced and bullshit of them to do that, but the only time I thought banks could force insurance on you is if you let yours laps, I can't find any cases like yours but I did find cases of banks over charging for insurance. http://www.nytimes.com/2012/01/11/bu...nce-fraud.html

[Nasuem]

If you think about it logically, you should only be taking out a loan if you can make the payments. If you are cutting it so close that if rates rise, you can't make payments, then don't take out a mortgage.

Whatever happened to restraint and living within your means?

If you can't afford to purchase a home then rent or move elsewhere.

Are you so bored you have to ask inane questions that are far too broad to answer? Why do people do drugs? Why do people overeat?

[Daymanmb]

Youre asking the wrong question. Why are people given exorbitant mortgages they cant possibly afford?

[Kithelle]

I was actually suggesting a situation where they could afford a better used car with financing, but according to you, they should buy a junker on its last leg they have the cash for instead, since financing apparently means it's automatically a bad option. You keep saying "new," but that was just a random price I happened to roughly know off the top of my head meant to equate something virtually nobody questions taking loans out for with something you said nobody should ever need a loan for under any circumstances.

Don't bother...he is just another person who thinks he is right and everyone else is wrong no matter what. He lives in a perfect world and I'm guessing the way he talks he was born with a silver spoon in his mouth...doesn't know how the real world works.

[Jotaux]

Because they think they can afford it.

[Auxora]

There are a few reasons. One is one spouse or the other many times wants a house that's a little out of their price range. $20k more in a house price doesn't sound like much, but it actually makes a significant difference in how much nicer a house is. So people fall into the trap of not thinking it's that much more, when it really ups monthly mortgage payments along with property taxes, usually utilities, etc.

Another reason along the same lines is that especially first time home buyers often seriously underestimate total costs in owning a home. They only look at the base mortgage payment, and don't include property tax (and yearly increases in property taxes), mortgage insurance, homeowner's insurance, furnishings, utilities, and most importantly maintenance. Things like a new furnace or central air, new roof, etc. can cost $5k-$10k+ easily. More serious problems like septic tank or foundation problems can cost even more. Before they know it people are over their head.

Probably the most common problem is people that overestimate increases in future earnings when figuring what they can afford. Someone starting out will think for example, I'm making $50k/yr now so I can afford $x payment, but in 5 years I should be making $75k/yr so I can really get by the first few years and afford an $x+$y payment. And 5 years later they are only making $55k/yr and along with the reasons above, are over their head.

Plus there are the people that have unexpected things happen whether it's being laid off, divorce, children, medical costs, etc.

In the end it's really the banks and mortgage companies that shouldn't be giving people mortgages for homes that are outside people's means, at least for all but the unexpected things category. Stick to your budget when house shopping, account for normal house expenses, and house shop based on what you can afford at current income levels rather than theoretical future income levels and you should be fine.

[SupBrah]

Because some people are just not meant to own a home.

Same way some people are just not meant to get a college degree.

Unfortunately, people get pissy when you point these things out.

[zenkai]

Buy a used car. Why would you buy a new car? They're shit value. Your student loans were an investment into yourself that you can make great returns on. A car is damn near always a shit investment that you will never make a return on.

That use to be the case but the price of used cars went up after a lot after the trade in, if factor in maintenance cost and other things I found it just as financially feasible to buy a new car. It was my first new car, and I plan on driving it until the wheels fall off because you do lose a lot of money on trade in.

Another thing you have to factor in is financing, yeah my New Toyota cost more but I got 0apr vs whats the rate today? 3-7% on a slightly used car? Even more on an older car?

[undeadmoon]

Yeah, kinda expecting this. And then our taxes go to save asshole banks when they get too greedy. Luckily where I live until last time I checked banks are sort of responsible and will refuse mortgages / loans if your income doesn't check out for it. But yeah, there are also "loan-shark" banks that advertise with "Credit for everyone, no security needed"

It was a huge issue in the area I grew up in, so much so the very neighborhood I lived in is now known as "Lil Detroit" for the amount of empty and abandoned homes, these lenders moved in and not only gave out bad loans, they did something I hadn't necessarily wanted to derail and rant about, but they bought out tons of subprime loans or loans earmarked as "troublesome/at risk" and did shady looking things like @Bodakane's mortgage company did, or they'd play an amoral and somewhat illegal shell game of moving your loan around a bunch of subsidiary shell mortgage companies (sometimes moving you through 2 or 3 companies a month!), making it hard to pay the right one so you'll default, that last one I saw in person with my parent's mortgage; Luckily I knew of a city councilman who helped me find a lawyer to pro bono mediate them being able to leave without the company(Companies? There were 3 that showed up at a meeting, all 3 claiming rights to the house,all involved, about 6 or 7 were subsidiaries of the one main company although several claimed otherwise.) fully entering foreclosure, even though the whole thing tanked their credit, it was not nearly as devastating as a foreclosure would've been. Their original loan was through a reputable well known bank, who decided they were "at risk" because of age and previous illness, and sold their loan to the primary predatory company with a huge block of other at risk loans. The whole thing was quite eye opening, and my surviving parent has been named without his prior knowledge in several class actions, and was awarded some of the value of the house back, as well as several of his payments. He now rightfully only wants to rent, as he feel he has more rights in this state as a renter than as a homeowner.

Most of the people in the same area weren't as lucky, and I know that my old hometown isn't the only one that's had this issue...Honestly I think another crisis is on the horizon, it doesn't seem like much changed in regards to predatory credit, just the names of the major players.

But I have rambled enough.

[xero5141]

Also, really? You can get a usable car for 2K. 2K is NOT a lot of money. Ride a bike to work, they're vastly more efficient than a vehicle ever will be.

How, in your clouded opinion, do you suppose someone would buy a house?
Do you own a house? If you do, your opinion probably doesn't matter because some form of circumstance has led you to have choices and paths that are NOT available to your average person.
If you're renting, your opinion doesn't matter because RENT is far more wasteful financially than interest on a mortgage ever could be.

I live in an area where it is virtually impossible to ride a bike to work doing anything other than making $9 an hour at taco bell. Definitely won't be reaching financial security at Taco Bell, will I?

Depending on where you live, maybe you can find a car for that price. Anywhere that has vehicle inspections... not likely.

The FACT is that people NEED financing because of a system that has been created over the past century or so.

[Docturphil]

When I bought my first hours years ago, they'd say "oh it's only XXX amount per month" but they don't tell you about property taxes, mortgage insurance, and all the other stuff. So you get stuck with it once it's too late. Now after I bought my second house, I was more than prepared at all that stuff.

They didn't tell you about property taxes and mortgage insurance? That's very surprising to me. Must have been some real shady ass hole you bought your house from.

I bought a house almost a year ago and I made damn sure I knew exactly how much I'd be paying. The loan dude from the bank was very good at answering all my questions and was very up front and honest with me.

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First, if you get a fixed rate loan, the rates can't rise. Second, it's most often because they are being told they CAN afford it. When a bank says, "you can afford X amount per month," it's very easy to simply think, "oh, okay." The problem is that some people don't have a great grasp of their actual finances. They also lack the foresight to budget in emergencies, like cars breaking down, large hospital bills, etc. So while in the end, it's because people just don't do the math, it certainly doesn't help when a bank says, "you can afford X." It's made even worse when banks create horrible loan systems that they sell you on and mislead you about. Unless you really understand what you're being sold, it's easy to just believe the "experts."

I mean people should be smart enough to take some time and do some research to figure out what exactly they're getting into. For most people buying a house is the biggest investment they're going to make in their entire life.

At the same time, banks need to be wise about who they're loaning money to. When I pre-qualified for a mortgage they told me I could borrow up to some obnoxious amount. It was waaaay more than what my house cost. It was also waaaaay more than I should have ever borrowed. I mean if I had gone full retard I may have been alright, but best case scenario I would have been house poor for many years until I was able to get to a better point in my career.

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They'd still have to pay rent. A mortgage is no different in that regard.

Except that when you pay off a mortgage you can get that money back by selling your house. You can't sell your apartment. It's money you're essentially pissing away.

[Keosen]

Nobody forced them to take out a mortgage.

You do realize that this is just plain stupid and not even an argument right?
There are many reasons that can lead you to not being able to pay a mortgage, you assume that every single person who can't pay a mortgage should be blamed solely because they reached a point when they could not pay it.

Global economy is running on debt creation.