Homebuyers Beware!

Foreclosures in Colorado continue to be high and filings last week reached 915 for all counties in Colorado. Out of the 915 filings last week, El Paso County had 115 filings for foreclosure. Although there are many foreclosures in Colorado, we are no longer one of the top 5 foreclosure states in our country.

I actually have not known anyone personally who was at high risk of losing their home to foreclosure until recently. These homeowners purchased their home in Arapahoe County not even one year ago and are going to stop making payments on their mortgage since they are in over their heads. I reviewed some of the possible options with the homeowners and they are leaning in the direction of foreclosing on the home despite of the consequences the foreclosure will have on their already less than perfect credit. They do not have money to bring to the closing table if they are able to sell and they do not want to receive a deficiency judgment from the lender down the road (lenders have 6 years to file a judgment) as a result of a possible short sale.

After paying their mortgage, there is minimal money leftover to pay for everything else (utilities, groceries, gas, car payments, etc...). One of the homeowner's told me: "Looking back, I wish they didn't approve me for the loan." Ultimately, it is the responsibility of the buyer to ensure they can afford a home but many individuals look to a lender for guidance and this lender put them in a home they could NOT afford. I am wondering how he qualified these homeowners and if he even calculated their debt less income (back end ratio). I don't know what kind of ratios he was using when qualifying them for their 80/20 conventional loan let alone how they were approved for it! In this instance, the homeowners did not create a budget and prior to purchasing this home, looked at a mortgage calculator to find out how much they could afford and figured they could afford the mortgage. Mortgage calculators are useful tools but buyers need to take into account other expenses and debts as well!

If you are looking to purchase real estate in Colorado Springs make sure and qualify with a good and reputable lender. If the pre-qualification you receive is based on your gross income, you may want to re-think how much you can afford to buy. Gross income is before taxes and last time I checked, a large amount of your earnings go to taxes. Instead, look at your net income and then subtract all of your debts every month (car payments, credit cards, school loans, etc...) and you will have a better idea of how much you can really afford. Be wise, don't get into the situation where you pay your mortgage each month and then charge all of your other expenses on credit cards. Before you know it, you will be in over your head in thousands of dollars of credit card debt.

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For information on the buying process and available Colorado Springs Housing please go to www.patricia-beck.com.