 A metta del viagio de la mia vita, ho finiemente rispermiato abastanza soldi per fare uno konto del 3% su un bungolo kon du e kamere daletto al liturakin akensa. Per se mi ero ston konto di pagare il mutuo del padone di kasa e ne volevo uno mio. Mamma mia. Oh Mamma mia. Here we go again. Hello and welcome to hell. Or as we at the CMPF like to call it, the U.S. mortgage system. Mortgage. Even the very name sounds evil. Think of all the abominable things that have more in their name. Morbid. Mordor. Morgan. And make no mistake, mortgages are evil. Yet not only are mortgages evil, they're boring and confusing. If anything exemplifies the banality of evil, it's a mortgage. To comprehend why mortgages are evil, we must understand that mortgages are different things to different people. To some, mortgages are loans, to others investments, and to others commodities. However you perceive them, rest assured mortgages guarantee one thing, 30 years of suffering, or more if you get a second mortgage. At its fundamental level a mortgage is a loan to buy property. Since most houses cost hundreds of thousands of dollars and the average proletariat doesn't have hundreds of thousands of dollars, mortgage lenders like banks lend money to cover the cost. Do banks lend this money out of the kindness of their hearts? Hell no. They lend money so they can collect interest for 15 to 30 years. In many ways a mortgage is like a credit card loan. Except a mortgage is backed by collateral. Which of course is the house. That's why people say they don't actually own their house, the bank does. Which technically isn't true. When you buy property with a mortgage you do own it. It's just that if you don't pay your mortgage, the bank will foreclose and kick you to the curb. If you are seriously considering buying a house and therefore getting a mortgage, please, please, please do your own research. In fact, here is a list of books we recommend for researching mortgages. Now you can take the time and learn all you want to know about mortgage lending. What's that? Literally anything is better than learning about mortgages? Fine. Since you're clearly a sadist who just wants to watch people suffer, let's enter the gates of hell and see the horrors of the U.S. mortgage system. Shall we? Circle one, limbo. The first circle of mortgage hell is limbo. For all those waiting eternally to get a mortgage. Granted, when we visit the lower circles, you might think not having a mortgage isn't so bad. Except all those who aren't homeowners are forced to feel the eternal torture of the landlord. I'm sorry your toilet has sprung a leak. I'll send for a plumber sometime next week. There are many reasons why you can't get a mortgage. One of those is paperwork. Yes, paperwork. Don't you love bureaucracy? Of course you do, you're a communist. But what you don't love is capitalist bureaucracy. Well, bad news everyone. If you want to get a loan from a fine financial institution, you'll need to fill out the 1003. The 1003 is the standard mortgage application form. It tells a lender what type of property you're looking to buy and what type of mortgage you're looking to get. It also tells the mortgage lender what your income is, how much of that income goes towards other expenses, and how much cash you have for a down payment. All this information helps a lender figure out how much money they can lend you and expect to be paid back in theory. Now if you fill out the 1003 and give it to the nice mortgage lender, will they give you your money without question? Well, before 2008 they probably would, but now absolutely f***ing not. Now you need to supply proof that your finances are what they say they are. Proof like bank statements for the last three months, retirement account statements, your most recent pay stubs, W-2s from the last two years, tax returns from the last two years, gift letters from the down payment, the foreskin of a virgin goat born on the autumnal equinox, and 50,000 other documents. All this paperwork is annoying and boring, and going over the process of applying for a mortgage is a series of episodes that nobody, and we mean nobody, wants to watch. Unfortunately, all this paperwork needs to be done correctly if you want to get the best mortgage terms, which is why having a reliable loan officer is essential. Filing paperwork is only one of the hurdles to getting a mortgage. The other issues are building up your credit score, and saving a down payment. Depending on where you're looking to buy, saving up for a down payment can take a very long time. In fact, it may take years, if not decades, to organize your personal finances so you get the best mortgage terms. Most people don't have that type of patience, especially when all of American capitalism is screaming for us to buy a house now. Buy house now, buy now house, house now buy! Luckily, the mortgage industry has a variety of products for people with poor credit and nothing in savings. Those poor, unfortunate souls who don't want to be tortured by their landlords anymore. Those that are willing to become part of The second circle of mortgage hell is reserved for those who pay less than 20% on their down payment. If you recall from our home buying ten commandments, we said you can only afford a house if you can make the full down payment. To explain why 20% is ideal, we have to understand how housing payments work. Your housing slash mortgage payments, also known as pity, consist of four parts. Principal, the only part that is actually paying for the space you live in. Interest, the fee the lender charges you for the favor of lending you money. Taxes, the fee the county charges you as punishment for being part of the landed gentry. And insurance, which is protection money against natural disasters that are sure to get worse with climate change. When you make a 20% down payment, only these four things constitute your housing costs. Of course, 20% of any house price is incredibly expensive. For example, if you bought a $200,000 house which actually is below the national median home price, you would pay $40,000. For many proletariats, 20% down is unaffordable. But have no fear, your mortgage lender is here to help you out because they care about you. They want you to have the house of your dreams because you're family to them. And as we all know, family members never f*** each other over. Often mortgage lenders offer products that don't require 20% down, which is perfect for someone who doesn't have that much in savings. Only 3.5% down for your dream house that sounds too good to be true because it is. Let's go back to pity. If you pay less than 20%, your principal will be higher, which means you'll owe more in interest. The lender will also raise your interest rate because to a mortgage lender, loans with less than 20% down have a higher chance of default. The county will tax you the same rate whatever your mortgage balance. And on top of all that, you'll also owe more in insurance because in addition to regular homeowners insurance, you'll pay more in private mortgage insurance. Private mortgage insurance is insurance that covers the rest of the down payment should you default. It basically makes sure that the mortgage lender is paid the difference between your down payment and a full 20% down payment. Whether you make a 20% down payment, you'll still have a plethora of other mortgage choices like whether or not to join the Circle 3. The Army When it comes to understanding interest rates, we could all use a hand. Mortgage interest rates fall into two camps. Fixed rate and adjustable rate. And mortgage paradise, which we know sounds like an oxymoron, you would have a fixed rate mortgage, meaning your interest rate and thus your mortgage payments would stay the same for however long it took you to pay off the mortgage. Fixed rate mortgages are why owning can be better than renting. While your rent may go up with inflation, your fixed rate mortgage payments stay the same. What you pay the first month is exactly the same as what you'll pay 30 years later. But while fixed rate mortgages are less risky for average homeowners, mortgage lenders. Because if borrowers lock in low interest rates and then interest rates go up, mortgage lenders will have to be put on re-education watch, because they loaned hundreds of thousands of dollars at a rate way below the market. That's why mortgage lenders try and push people towards an adjustable rate mortgage or ARM. An adjustable rate mortgage is exactly what it sounds like. Usually the interest rate follows what's going on in the rest of the economy. If you're a homeowner during a time of low interest, then congratulations, your mortgage payments will be lower. If interest rates rise though, then you'll also be paying more for your house. Thus your housing costs will be flung about on the endless winds of the economy. So why do people get an adjustable rate mortgage? The biggest reason is that they have poor credit and any fixed rate they qualify for is prohibitively high. ARM's initially offer a lower rate than their fixed counterparts. This is called a teaser rate. For example, during the housing bubble, subprime mortgages offered a 228 ARM. Meaning borrowers with poor credit could still get a low initial interest rate for two years. Of course, after those two years, they'd face exponentially higher interest, but by then they'd have their finances in order. Right? Now in the interest of dialectics, we have to say that some people take on an adjustable interest rate and only pay a 3.5% down payment and still manage to pay off their house. They work hard, build equity, refinance, and eventually reach paradise. Other people take on a riskier mortgage because they don't just want to own a house. Other people take on a riskier mortgage because they think they can become millionaires by gambling on real estate. In other words, some men don't buy a house to escape landlords. Some men buy a house to become landlords. To be continued. Produced in collaboration with Fort Collins Public Media, if you have comments, questions, or suggestions for future episodes, please email us at communistfinance at gmail.com or follow us on Instagram at comradork.