This is a story about how easy it is to get into serious trouble ... even when you know better. Last year, I sold my mobile home in California and headed east to North Carolina, where the housing prices were so much lower. My dream was to not die without ever owning a real home. I was single, 51, and really wanted my own home - self-employed or not.
I had gotten some information from a family friend (ironically a mortgage broker) who told me about "Stated Income" or "Low-Doc" loans, and that I could qualify for one easily because of my good credit score.
I drove across country, cats in tow, and stayed in a hotel for 7 weeks looking for my "Dream Home." And, when I found it, even though it wasn't in my price range, I knew I would do anything I could to get it. I was vulnerable, emotional and became a victim.
Actually, that is not quite accurate - I made myself a victim.
Being self-employed, (actually at the time, I was on disability from hand surgery), the only loan I could qualify for was a Stated Income Loan. That's where you just tell them what you make, and it is not verified except through two years od tax records and your FICO score.
I fudged my anticipated income and qualified for a stated-income variable-rate interest-only loan. In just three weeks, I had moved into my new home and was busy making the changes it needed. I didn't watch my budget, nor did I pursue building my business as I was so obsessed with my Dream Home.
Interest Rises, Income Falls
Then, six months later, when the interest rate changed, my payment went up. But I still had some disability money, so I didn't think about it - I just knew work would come. It didn't.
I did some writing, but my usual business sank like the Titanic. I started sending out resumes. Nothing happened - no calls, no form letter rejections. Just the sound of dead air. Then, the interest rates went up again - and so did my payments.
When my disability ran out, I applied for unemployment, which held me over until March or May of this year, I can't remember. Still, no work came in. Oh, I'd do some carpet binding here and there, but it just didn't cover the bills.
I didn't just sit on my fanny. I got out and showed my samples, sent out cards, got some local publicity, and even put out road signs. For a few weeks, it generated a bit of work, but nothing like I made back home in California.
Then, my hands began to hurt to the point where I was declared permanently disabled (Carpal Tunnel Syndrome) and started applying for Social Security in July. To pay my mortgage, I broke the cardinal rule of credit card debt - I started taking out cash advances, until I had maxed out my cards.
I applied for more, and of course, being a "homeowner" got them - then I maxed them out as well. I took my over-limit line of credit from my bank and used that to pay bills, and then I cashed in the Roth IRA I had just started. This paid my bills through August. I was so poor, I had to apply for food stamps and Medicaid.
I got emergency food stamps, and thank God I did, or I would have lost 20 pounds between then and now and I only weigh 110 to begin with. It's very humiliating and humbling to put yourself into that situation. But I did what I had to do to survive the effects of my lie.
Then I ran out of money. I couldn't even afford my cat's chemotherapy medicine, and had to borrow from a neighbor the money to pay for it. This minute, I sit here with $3 to my name.
I became so depressed, I was nearly hospitalized two months ago - about three different times - and I have no one to blame but myself. I lied about my income, thinking I'd make it easily here.
I am ashamed about it, but have learned a hard lesson. I maxed my paid-off credit cards and ruined my hard-won excellent FICO score - taking it from the mid 700's to the mid-to low-600s. That is devastating - it took me 7 years to build that up after an old bankruptcy. Yes, from credit cards.
Enough Blame to Go Around
But I also have to lay some of the blame at the feet of these lenders - I was not told how quickly my loan could adjust, or what the cap was. I was too obsessed with getting this home, I did not do for myself what I do for everyone else - I did not follow my own advice and am paying the price.Stupidly, I:
Did not shop lenders (I felt I wasn't in a position to).
Did not tell the truth about my income.
Took the first loan they offered me.
Didn't read the fine print.
Did not fix a budget and stick to it.
Bought way too much house.
Ignored my business and employment opportunities far too long.
Stated Income Loans area the proverbial two-edged swords and should be considered predatory. The story they tell you is that they allow you to get into "more house" at a lower rate - and they do. What they don't tell you, especially to first-time homeowners that don't know the jargon is that you will pay the price eventually.
If you don't put down 20% you have to pay Private Mortgage Insurance, or take out a second. I didn't have 20%, so now I have a second mortgage, too - that has risen from $135 per month to $201.47 per month. I used to live on what my mortgage payment is now.
Today, I had to ask friends for money to catch up my payments or lose it all. They have come through, and I know I am blessed by their generosity. But how humbling is it when they consider you one of the brightest, most resourceful and talented people they know, and you are on food stamps and can't pay your bills?
A Renter Next Time
I can tell you, in my next life, if I cannot qualify for a fixed rate mortgage, I'll go back to renting. It's just not worth the scare you get every six months when the rates change. And I haven't even talked about what happens when your adjustable period runs out - I don't want to know.
Sadly, I am at the point where I had to get honest that I messed up by lying and put my house on the market. Normally, with the improvements I've made, I could have asked close to $269,900. Now, because I'm backed up against the foreclosure wall, I have to drop my price $20k in order to sell it before foreclosure. It breaks my heart, but I am pragmatic - much better to walk away with less money in your pocket than with NO money in your pocket.
As a consumer advocate, I am embarrassed that I failed to follow all the research I had done - my heart led and my brain stayed behind.
I hope you learn from my mistake - there are predatory lenders out there who prey on first-time buyers, seniors and single women. Too bad they aren't made to wear signs.