Foreclosure: It Takes Two to Tango

There's a great post today over at Generation X Finance about a story that ran on CNN yesterday. The story was about a couple who lost their home to foreclosure and are now living in a camper. On the surface, this sounds like the saddest story in the world. Until you hear the details:

1. Couple buys 2,700 foot home in Las Vegas for $265,000 with a no money down,interest only loan.
2. Thanks to the booming Las Vegas real estate market, the home doubles in value in a year.
3. Wife loses job, and the couple takes out a home equity line of credit to help pay the bills that are piling up, inlcuding the mortgage.
4. Couple tries to sell their home, but the Las Vegas housing bubble has burst.
5. Broke and unable to sell their home, the couple takes out another $35,000 loan to pay the mortgage.
6. Couple home is foreclosed on by the bank and they are now living in a camper.
7. Couple blames foreclosure on lender, saying their loan docs were "confusing and hard to understand."

The bolded parts of this story are the mistakes that Gen X Finances says the borrowers made. I know what I think about all of this and if you read Gen X Finances original post, you'll know what they think too.

What do you think? Were these people taken for a ride by unethical borrowers or did they dig their own financial hole? Should borrowers in general take more responsibility for the current mortgage crisis?

Fun FHA Facts

Word on the street is that FHA loans are the new subprime, and according to recent news, there may be even better news on the horizon for borrowers with less than stellar credit, even those who need to refi.
What with all the subprime hubub, FHA loans haven't come into play as much the last few years. According to Investopedia.com, an FHA loan is:

"A mortgage issued by federally qualified lenders and insured by the Federal Housing Administration (FHA). FHA loans are designed for low to moderate income borrowers who are unable to make a large down payment. FHA loans allow the borrower to borrow up to 97% of the value of the home. The 3% down payment requirement can come from a gift or a grant, which makes FHA loans popular with first-time buyers."

But it's not only low to moderate income borrowers or first time home buyers who can benefit from an FHA loan. FHA is also good if your credit score is a little low. FHA will accept a minimum credit score of 580, whereas the minimum for a conventional loan has gone up to 620. It definitely gives you a little more wiggle room.

In addition to allowing a 3% gift, FHA also allows up to 6% in seller concessions, almost twice what most conventional loans allow. That's a lot of closing costs!

Best of all, the FHA loan limit for Knox county was just raised to $271,050 (FHA loan limits for others counties can be found here). With that kind of money, you can almost certainly find yourself some very sweet digs in our fine city.

Debt Reduction for Dummies

Crappy credit means a crappy credit score. And a crappy credit score means either a) a higher interest rate on your conventional home loan, or b) no conventional home loan. In fact, a credit score of 620 or better is now required for all conventional financing, FHA not included. That's up from 580 just a short time ago. It may not sound like much, but those 40 points have squeezed a lot of folks out of the home buying market.

If you're one of them, cleaning up your credit report is the only way to get back in the game, and that means not only getting rid of debt, but also not accumulating any more of the nasty stuff. Luckily for you the nice folks over at Dumb Little Man have put together a list of 20+ Ways to Get Rid of Your Debt For Good. While it's not a step by step guide, it does contain a lot of great advice. And before you go getting all "Duh!" over ideas like-

1. Stop Adding More Debt



2. Get Rid of Your Credit Cards
   

stop and ask yourself this: if all these suggestions are so durn easy, why aren't you doing any of them?