As an accountant, I have a lot more insight into how my clients live their lives than perhaps their friends, family, and neighbors do. I can see how much they make each year, how their investment portfolios are doing, how much they spend on housing, and more. The most telling thing I have seen over the past few years is how poorly people manage their money, particularly when it comes to their homes. I have seen a surprising number of people working to avoid foreclosure, and the number of homes lost to foreclosure since 2007, and it’s due to uncontrollable issues such as unexpected health issues or loss of employment. Many of the people had simply made poor choices by purchasing more home than they could possibly need, where as time went on, their incomes could not support such high mortgage payments. A few even got in trouble when their ARMs were reset at higher rates than they predicted, causing a major strain on their finances and negatively affecting their ability to maintain their mortgage payments.
It got me thinking about what consumers would do if they were relieved of these burdens, were able to start over again, and whether they actually learned something from this financial mess the country is in, or if they would simply fall back into their bad spending habits. This last idea got me thinking about all of the people who have gotten into trouble by overextending themselves with mortgage payments they never should have taken on in the first place. Back to when I was looking to buy my first home, how the state-sponsored down payment assistance programs required each applicant to complete a course on home ownership, and I am now left wondering if that should be applied to all future mortgage applicants.
Education is a major key to success in any undertaking, and finances is no exception. The problem is that many first-time home buyers think that they only have to pay the mortgage payments, along with the regular set of bills such as gas/electric (or both depending on the region), food, cable, and phone just like they did when they were renting. Unfortunately things like insurance, upkeep, homeowners association dues (again, depending on the region), property taxes, special assessments, etc do not even cross the minds of many first timers, especially those who do not have a support system around to warn them of such expenditures. The point of the homeowners course was to make aware all of the applicants in an effort to prevent them from getting in over their heads with these unplanned or unforeseen costs related to home ownership.
Granted, not all people are ignorant to these facts, but it is always better to be safe than sorry. All drivers are required to take exams, both theoretical as well as practical before being licensed, regardless of prior experience and as it turns out, some people just are not meant to be licensed to drive a car. Owning a home is a responsibility just like driving a car; it takes certain knowledge and skill ie: being able to budget for all necessary expenses. Equally, not all people are cut out to own a home. Once they are made aware of the responsibilities and potential ramifications associated with failure in this regard might cause some people to realize (for the better in some cases) that home ownership is simply not for them. And, the same way that a drivers license can get revoked for violating traffic laws requiring drivers to go through additional courses and re-certification, perhaps the same needs to be done for those who have gone through prior foreclosures as well.
After all, wouldn’t it make sense for the governments-local, state, or federal, either one(s)-to take preventative measures to ensure that all mortgage applicants are educated as to the responsibilities of owning a home rather than waiting for problems to arise before being forced to deal with these issues. It would certainly reduce the chances for this type of housing crisis to emerge in the future, and prevent the federal government from having to bail out both the lenders who were blinded by profits in giving mortgages, as well as those who had no business even accepting a mortgage who couldn’t possibly afford them. There can be no finger pointing here, the blame goes to both parties in this instance.
Did you find yourself in this situation? Maybe someone you know? If so, would you consider purchasing again? What were your takeaways from that experience?
About Eric J. Nisall
