There has been a great deal of commotion lately regarding the Mortgage Industry. Websites have been set up to keep track of all the Companies that are going out of business due to poor lending practices.
What does this mean for you? If you purchased your home in the past 2-5 years and used a creative mortgage, ie: arm, interest only, even some no downpayment mortgages, then you may be one of the many hurt by these latest happenings.
You may have heard about the increasing amount of foreclosures in Rhode Island. Well some of this is due to these formerly mentioned lending practices. I am not going to go into who is to blame for this, because ultimately, it falls on the consumer to pay attention to his/her own finances. However, I believe that, at times, a borrower tends to think that the Lender "would not give him a loan if he could not afford it".
This, as you may now be aware of, is not true.
If you or someone you know is in this unsatisfactory position, and depending on how long and other factors, you need to address the situation as soon as possible. Don't wait until it's too late. The last thing you need is to lose your home. The lending laws are in the process of changing, but it will take time for the results to be seen.
I had a call the other day from a young girl who bought her home two years ago (I was not her Realtor:). She applied for a mortgage and was approved for an interest only mortgage for three years. After the three years the payments would change to include the principle and a higher interest rate. Basically her payments will probably triple. Now, she says she cannot even afford the original "interest only" payments. She called me because she had seen a foreclosed home I had on the market. I had to explain to her that she probably had no equity in her home because the market in Rhode Island had been stalemating. There really wasn't anything I could do for her, other than try a short sale, but she was still thinking she could "switch" houses. She is sadly, out of luck.
Please, please, please, when you are looking for that new home, do not get so caught up with the dreams that you lose track of Reality! You probably know way before you get to the loan application what you can really afford. Don't forget it!