The Financial Education of America (part 1)

Where has personal responsibility gone? How is it my fault you’re a sucker or an idiot for buying a house you couldn't afford? You say, "I trusted the realtor or the bank's loan officer, it's their fault." Since when do you ever trust another person with your money? When do you trust a salesperson to "give you the truth"? This is a classic example of why common sense is dead!

Do we need to require that a financial IQ test be given AND passed before you can qualify for a mortgage loan? I have created one that will solve our problems:

SAMPLE TEST

Q1 – Have you defined your shelter needs?

Q2 – Wrong answer dumba$$. A separate bedroom for each kid, a swimming pool, and 3 acres are not necessities for basic shelter. Redefine your needs and we will see if you can afford those WANTS later. Remember, humans have survived for thousands of years in a one room dwelling that was the kitchen, living room, office and bedroom. Yes, the kids did understand how babies were made and yet somehow they survived.

Q3 – How much can you afford?

If you don't know this, you have no business even thinking about a home purchase!

Take your gross income and multiply by .28. That was point two eight, not 28. Example $60,000 x .28 = $16,800. Divide $16,800 ÷ 12 (months) = $1,400. This is the amount you can afford to pay for the mortgage, utilities, repairs, home owners insurance, and all other costs surrounding your housing each month. This amount varies depending on how much other debt you have à Monthly credit card payments, student loan payments, and car loan payments, big screen TV payments, and other worthless shit you may have bought with credit. If you have less debt, you can increase this to as much as .35. Anything higher than this amount makes you house poor.

House Poor: You are paying so much for your house that you cannot afford to furnish it or buy anything else.

Here is how a typical person spends their income:
Taxes 25.00%
Mortgage, student loans, credit card, car loan 45.00%
Retirement 10.00%
Savings, Emergency fund, vacation fund, kids college fund 5.00%
Living Expenses 15.00%
Total 100.00%


Q4 – Can you calculate the monthly payment on a $300,000.00, 30 year fixed rate loan at 6%?

Yeah, I didn't think so. Go figure it out and come back when you can.

Now that you know how to calculate the monthly payment, you know how much you can afford, and what you housing needs are, you are ready to start shopping for a house. Did you read that? Now you are ready to shop. You don't find a house first and then see if you can afford it. That is the fastest way to pay the more money than you should.

FYI: Realtors, both the buyers and the sellers; want to sell you the most expensive house at the highest price possible. They work on commission, so getting you into a less expensive house hurts their income. They typically make 3% of the sale price each for a total of 6%. Buyer typically pays.

Rules:
1) If you don't earn enough to pay federal income taxes, you do not make enough to buy your own home. Yes, life is not fair and it is about Freaking time you realize it. Stop whining.
2) You cannot trust other people with your money. No one cares about your money more than you; except the guy or gal trying to take it from you. You cannot trust your realtor, loan officer, car salesman, investment advisor, student loan counselor, or anyone else if you do not understand what they are doing. You need to understand how they make money. If you are ignorant, you WILL lose money!!! If you are unsure, keep your money until you become informed. Asking friends you trust, other professionals in the area you are ignorant about, go to school, and using the internet are good ways to learn what is going on.
3) Over the course of 30 years, you will lose your job. Plan for it, save for it!