Re: home improvements - even though not all our non-mortgage debt is paid off, we have been putting some money into home improvements. Why? Because on top of things that simply break, there are things in this house that we’d like to change as soon as we can afford it. Most of them are structural/efficiency related (catching minor problems before they become major), but almost all of them also improve the cosmetics of the home. We started with projects that are mostly labor, and we always pay cash. We COULD put that money towards our student loans or towards the mortgage, but once again, we’re in this for the long haul, and would prefer to live in a home that we LIKE living in. The really big projects (for example, redoing the kitchen) are going to wait longer, but even knowing what we PLAN to do makes it easier to live with annoyances now.

It’s not like I don’t sympathize, but when we taxpayers have to bail people out, we have a right to be annoyed, and others’ choices do become our business. I’m not holier than anyone, but I also don’t expect for other people to finance my mistakes and pay for my home.

@Peg–Seems like they couldn’t really afford that house, even if they qualified for the loan, since they had those other debts and couldn’t pay the HOA dues or insurance. Hopefully they’ll learn from this and come out better in the end. That’s how I view the credit card debt we paid off. It difficult at first to look at what we owed and cut back on spending to pay it all off, but we’re so much better with saving and handling our money now.

HOPEFULLY (I’ve known for just about 3 weeks now) we wont have to deal with me without a paycheck - but I can tell you that even if I would have been laid off that DAY the first bill that will be paid is the mortgage!

I don’t understand these situations half the time. Have they turned off their cable? Their internet? Sold a car? Had a yard sale? Cut back on food? Entertainment? If your loan payment was SO HIGH that you cant cover it with at least one of your paychecks then you couldn’t have possibly worked out a budget at all before you bought a house.

Maybe I’m wrong - but even with an ARM adding to your loan like another $300 a month - I could cover that by cutting out my cell phone, cable and eating out.

Unless you could only afford your house because you are already doing all those things, then you bought way out of your price range to start with!

And about the down payment -

My husband and I only put down about 5% because we knew the market was crashing here. Why should we have put down 20% when there is a good chance it would just negate any profits when the market price goes down? Unless you are going to stay at your house for the whole 30 years and pay it off - where is the benefit except for a lower payment?

We will probably stay where we are for at least 10 years, but my boss (who is also getting laid off) has to move and since nobody is buying and the price of his house dropped he is losing ALL the 20% he put in and then some.

One thing about frugality that is often overlooked is that it has diminishing returns. I doubt I could save $6000 by finding ways to reduce spending. A lot of the examples in the original article (life insurance, debt, etc) I don’t even have, or need… others would involved reductions of 50% (ie: not available) or more (car insurance 50%, food shopping 50%, phone costs 65%, bank fees 100%). The point being that once you have already cut, or live a fairly tight lifestyle, there isn’t a lot of fat to cut.

On the other hand, I could probably cut $6000 from hobbies, entertainment and so forth. Eating out, skiing, etc. Or from education, another big ticket item right now. But in these cases, you have to give something up. In the above example, the bank fees I do pay are a premium package, but they also cover our credit card yearly fee and a bunch of other items over the three accounts. IOW, cutting fees can also involve reducing the services you get. In my case, I worked out that the package will be around neutral, plus I gain access to conveniences (intangible value).

In that sense, I’d rather make $6000 more. The lesson here isn’t really to embrace frugality, IMO. It just has to do with marginal changes - by not overpaying, you gain more than earning the same amount. Since I hate fat and cut it out of my expenses, the effort of finding any dollar amount to cut is far far greater than what I would get if I put that effort into getting a raise.

Not that most people wouldn’t gain from cutting fat!

Re: Real estate

Anyone who bought real estate at bad fundamentals (33% will probably continue to grow yet) will eventually have negative equity, most likely. This is likely end up as the majority of those that bought over the last little bit, unfortunately.

It doesn’t have to be about responsibility - the figure states only that housing prices have dropped below the down-payment amount (hence mortgage amount). It doesn’t state that they overbought, although it’s safe to assume that the majority so far probably did (bubbles do that). The point is that innocent, but naive, people can be in the same situation (buying a much smaller place, but now having negative equity).

It won’t be the responsible ones that come out ahead… and I don’t believe they ‘deserve’ it any more than the foolish mortals they deride. The only people who ‘deserve’ to come out ahead are those that bought/sold based on fundamentals. It wouldn’t really matter if someone ‘responsible’ saved for many years and put down a downpayment in a hot market, only to have their home reduce >25%. They’d be in the same position.

I contrast the two to make a point - it isn’t about being responsible, it’s about making the ‘right’ choice. I was responsible enough to make the 25% DP; but it wasn’t the responsible part that made me sell and not buy a home, it was the rational part. I could of been completely responsible and yet hit very hard, just as responsible people are being hurt . So, be careful with the holier-than-thou attitude… and if you want to take pride in being responsible, consider transferring it to being proud of making the right choice for you…

Case in point - my daughter and SIL. They bought a house they could just barely afford, but were OK until they decided to refinance and take some equity out to pay off some of their other debts. One of the bills that they were behind on was their HOA dues. So when they refinanced, part of the proceeds went to pay off a $3,000 lien to the HOA. Then, in order to keep the payments on the re-fi affordable, they opted out of escrow for insurance and taxes, and the next year did not renew their insurance, because they didn’t have the money. The result was a force-placed policy, which costs twice what they had been paying, and which increased their monthly payment by almost $250 / month.

So now they are in the position where they can’t afford the payments, can’t sell the house because homes here aren’t selling, and they can’t find a house or apartment big enough for their family that they can rent because their credit rating has bottomed out.

My SIL’s mother and I are thinking of writing a book titled ‘If Only You Had Listened’.

As Steven pointed out, if they were in a fixed-rate mortgage that they could truly afford, there wouldn’t be a problem. And we have a right to be irritated by these bad choices because taxpayer money will probably bail them out. The lesson that we learn is that you don’t have to be fiscally responsible because those who act irresponsibly are rewarded with property paid for by the rest of us.

Meanwhile my husband and I are saving to build our own home, well-WITHIN our means. Why is that okay for us, but not for others who just decide to buy more house than they can afford?

I want a big bright flashing FORUMS sign!