Bridge Loans and lost retirement

by pittcaleb Email    4040 views

The Ann Arbor News has a continuing series of how poor the housing market is, for some people, in the Ann Arbor / Washtenaw County area.

Looking at the numbers and finding specific stories makes it very easy to determine no one is buying houses in SE Michigan.

What I do not understand however is the sob story in today's paper. They put house 1 on the market, bought land and then built a (modular) house in the country. Did not someone tell them, hey, why don't you make sure the 1st house sells before going into more debt?

A lot of the financial problems we face today are because of people being extended too much credit. We know a young couple that bought a new (nice, but definitely not extravagant) house a couple of years ago. They probably did what we were advised to do - buy at the edge of what you can afford and grow into the house. The problem is people today have bought with adjustible rate mortgages - in a market where the rates were as low as they could ever be expected to be.

So you can guess - the rates went up and this couple is in tighter financial straits than they should be in. My advice would have been to buy as much house as they could at a FIXED RATE. Then they'd be growing into the house they can afford over the years. Of course with the market today, they can't move without taking a loss.

So back to the AA News story. These people wouldn't be in a bind if they didn't have access to a bridge loan - excessive credit. 10 years ago, probably even 5, they wouldn't haver qualified for this or even thought of it. But someone - their realtor, a banker a friend told them to just buy and build their 2nd house before selling their first. The problem they face, the sadness we're supposed to feel after reading their story, to me isn't that they can't sell their 1st house after 16 months on the market, but rather that they took horrible advice and over-extended themselves financially. Bad move!

If we'd all live within our means, we wouldn't have financial problems. If the house they're selling is so nice in such a nice neighborhood, then they could do some mods to it and find a way to continue to live there - medical issues included.

People lease cars they can't afford, paying lease payments for 3 years then 5 more years of purchase payments - paying 8 years on a car to drive something they shouldn't be able to afford.

We have a friend who has been paying $60 a month to store some $600 in furniture they bought new before a move and didn't want to sell or give away at a loss. They've been storing this stuff for 20+ months now. Can someone do the math for me?

Without making direct comments to either the people/friends in my stories above or those in the AA News, I want to pass along a quote of mine from years gone by. Poor people are not destined to always be poor. Stupid people however are destined to always be stupid. The problem is that poor stupid people will always be poor because they're stupid and make stupid (financial) decisions.

The moral of the story: Live Within Your Means!

There's a great local blog story about the market in AA too...