Last week I mentioned that I would be writing about HUD all week this week, and I will be but I wanted to start by discussing the reason that the housing market is in such a slump and why there are so many foreclosures, which in turn gives you a fantastic opportunity to get a great house, at a great price.

Adjustable Rate Mortgages - You sign up to pay interest only mortgage payments. Most people would ask, “What happens when interest rates go up?” The classic answer from lenders - “…then you refinance at a fixed rate”. Smart people then ask this question, “What happens if I can’t refinance then?”. That’s when you get the look. That one that you get when you’ve asked THE question that makes the deal not look so great anymore. The question that is their undoing. The question that WE asked when we almost got roped into an Adjustable Rate Mortgage.

The truth is, things happen, say you buy a house and the next year someone in your household gets very ill, requiring hospital time. You put it on credit cards because that’s what you have them for, emergencies. So now, you have maxed out cards - which dings your credit. Then the interest rates go up and suddenly your house payment is creeping up and you were doing good to make that payment as it was, so you call the bank to set up a refinance deal.

They pull your credit and reject you for the refinance. Uh-Oh.

This is what countless families are facing right now, not only are they going to lose their home if they haven’t already, but their credit will be destroyed with the foreclosure and there’s no way out.

Unforeseen things like this can be the undoing of your life because of one risky decision. We turned down that loan, and after inspection of the house we had been looking at we also declined the deal altogether - they must’ve thought we were suckers until we called them on the carpet for their dishonesty and that homeowner for all the things they thought they were hiding about that house. A year later we signed on to build a new home, with warranties and a fixed rate mortgage. Four months after we moved in, my old faithful Toyota ate a brand new part, which we saw as the beginning of the end. So we bought me a great used car.

Then Fort Worth had rain for weeks and weeks and my husbands’ car fell victim to a puddle too deep that he couldn’t see for the rain, and threw a rod. So we had to get another great used car. But both of those things dinged our credit collectively because not only had we just bought a house four months prior, but buying two cars, and shopping around at that - our credit took a significant hit. Had we signed on to an ARM loan, we would be pulling our hair out right now.

But we didn’t - thank goodness!

Adjustable Rate Mortgages weren’t designed for people to buy their first home and stake their future on a risky little game of chance, thinking “maybe the rates will stay the same for a few years”. It was one of those “creative” loan options that a lot of people used to start their retirement plans with by investing in real estate. When the payment goes up, you pass it on to the renter (or because they pay the bulk of the payment, maybe as the landlord you make up the difference), that is if you didn’t just flip the property, take the profit and pay off the loan.

Those in the Adjustable Rate Mortgages game early may have gotten lucky and been able to save themselves before the rates began creeping up. Those that didn’t are moving into apartments in droves and leaving their once treasured homes behind.

There is some recent hopeful news for those that are still in their homes on the horizon. But not everyone was able to wait this long and hang on…

Now it’s your turn to capitalize on others’ misfortune. It seems harsh, I know, but after all - the nature of business is to get the best deal at the best price. Stay tuned for more or sign up for the Sabrina’s Money Matters RSS Feed so you don’t miss anything!