Another one bites the dust

Here’s another case of someone buying more house than they could afford and now they’re whining.  According to the story “She has had to take extreme measures to pay for her interest-only mortgage of $2,500 a month.”

Let’s take a second and do the math on this.  Which is something Patricia Guerrero should have done before she bought the house.

According to the article, she made $70,000 per year – great money!  I’m assuming that was her gross pay, so let’s deduct 8% for SSI and Medicare taxes, another 15% for Federal taxes, and 9.3% (!) for California income tax according to BankRate.com.

$70,000 x 8% = $5,600 in SSI and Medicare taxes.  $70,000 x 15% = 10,500 in Federal income tax, and (assuming CA allows you to deduct Federal taxes) her CA taxable income was $53,900 x 9.3% state tax = $5,012.

Add it all up, and she had about $49,000 per year in take home pay – assuming she wasn’t putting anything into a 401K or company stock, health insurance, etc.  In other words, that’s about the most she could take home under any circumstances.

$49,000 per year is $4,083 per month.  I don’t know about you, that’s pretty good money where I come from!  But anyway, the standard rule of thumb is that your house payment should be no more than 25% of your gross pay, or no more than 33% of your take home pay.  A $2500/month house payment is way above that – it’s 43% of her gross and a whopping 61% of her take home pay!

When you factor in utility bills, a car payment or two, insurance, property taxes, etc, she couldn’t afford that house when she had a job!  Although the article doesn’t mention other bills, she almost had to be ringing up credit card debt each month just to stay afloat – kinda like banks borrowing from the Fed to stay afloat, but that’s a different topic….

To top it off, she has an interest only loan, so she wasn’t making any progress in paying down her mortgage.   But I guess we’re supposed to feel sorry for her, because now she’s broke.  To be honest, she was broke before – she was simply refusing to recognize what was staring her in the face.

Sorry, I have no pity for Patricia.  She spent more than she made for too long, and now she has to face the music.  She wasn’t a home owner, she was a squatter, and that home will be auctioned off when it goes into foreclosure.  Why should we (taxpayers) pay to bail her out of her self-made mess?

gk

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