If someone were to ask you what senior citizens and soldiers have in common, you may be expecting a response that has a comical punch line – the answer, however, is anything but funny. A common thread between seniors and soldiers is that both are groups whose members are increasingly facing foreclosure or default on their home loans.
While there’s no question that foreclosures have increased among all groups, taking a look at the reasons these two groups have been more directly impacted will shed some light on several common misconceptions about personal financial management and the state of the country’s economy. Below are four important lessons to be learned.
Both Spouses Must be Familiar with the Finances
In most domestic arrangements there is a division of labor such that one member of the family manages the finances while the other is responsible for other aspects of family life. Seniors and soldiers are both groups in which one member of the family may suddenly be unavailable, either because of death or deployment, leaving the remaining spouse to manage the finances, a task with which he or she is unfamiliar. In cases such as these, which are increasingly common among both groups, default on the home loan is often inevitable. This problem can be easily alleviated by ensuring that both members of a family or domestic partnership are familiar with the home’s finances, budgets and payment schedules, even if the daily financial affairs aren’t co-managed.
Bigger isn’t Always Better
One common mistake made by both soldiers and senior citizens is that they tend to overspend on their property while erroneously thinking that the loan will be easy to pay off. Seniors are often able to take on loans larger than they should because they’ve established a good credit rating or have existing home equity that they can borrow against.
In contrast, soldiers tend to over-borrow because they have dreams of large homes and they mistakenly rely on the availability of VA guaranteed loans to help offset the cost of the home. The only way to avoid such ‘big eyes’ is to seek advice from a qualified financial planner or mortgage broker before signing the loan, to ascertain whether the loan can be repaid, under normal circumstances, without overly straining the family’s finances.