Can I Afford It? Suze Orman Would Yell: "DENIED, DENIED, DENIED!!!"
I love watching the "Can I Afford It?" segment on the Suze Orman Show and I think I've found the ultimate "DENIED, DENIED, DENIED!!!" story. This one is truly outrageous...and sad at the same time.
This is not a typical situation of "Can They Afford To Buy This House?" but these are people who are getting ready to move into a custom home they have been building for the past 2 1/2 years, so their construction loan will be converting to a permanent loan soon.
As Suze Orman would say..."Show me the MONEY!!!" so here it is:
Annual income: $350,000 - $400,000 before taxes (he works 7 days a week as a contractor, his own business; she has no income and stays home with 3 kids 12 and under and is expecting their 4th child)
Expenses: contractor's insurance, health insurance, car payment (they bought a new SUV a year ago)
New home monthly costs: $20,000 - $25,000 monthly payment (~$3,500,000 loan amount), $3,000 - $4,000 monthly property taxes, utilities on a multi-level ~11,000 sq. ft. home (no solar system)
Savings: used to cover going over-budget on the construction of the home
History: They have been living in a 3,500 sq. ft. home that they purchased new for $639,000 10 years ago (that is how we met; I referred them as buyers) and after several refi/cash-out loans, they owed ~$1,000,000 (1st mortgage + HELOC) with a monthly payment of ~$5,000. So they are essentially going to be paying 4-5x more than what they were used to.
They tried to sell their current home a couple of years ago, but they owe more than it's worth and another agent listed it ~125% over market value. Since they couldn't sell their current home and planned on moving into their new home, they stopped making the mortgage payments (strategic default) on their current home a year ago. Now if anything happens to their new home, they won't have their old home to go back to.
Originally, they also planned on selling a couple of their investment properties (rentals in the Sacramento area) for a profit to pay down the $3,500,000 mortgage...but with the economic downturn, they stopped making the mortgage payments on those homes because they were worth less than their loan amounts. Now their $3,500,000 mortgage won't be paid down, unfortunately.
I'm no financial guru, but to me this obviously looks like the next luxury home foreclosure. With $300,000 - $350,000 per year going towards mortgage interest and property taxes, his income would barely cover that plus their living expenses. He's also in his mid-40's and as a contractor who works what I would consider hard labor, how many more years can he continue to do that for a living, working 7 days a week? How can they save up for retirement with that kind of housing/income ratio? We've mentioned this to them...it's just too bad that they are in denial.
To them, they are moving into their dream home...to me, they are walking into a nightmare.
Suze Orman would yell: "DENIED, DENIED, DENIED!!!" on keeping this home. I am sure of it.
Have any of you ever come across people like this, who simply don't want to face reality? If so, have they ever seen the light...and was it in time...or was it too late?
BOB & LEILANI SOUZA
Real Estate Investment Specialists
Southwest Placer County, CA
Bob Souza - 925.513.3400 - firstname.lastname@example.org
Leilani Souza - 916.408.5500 - email@example.com
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