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Carolyn and Tina experienced the financial difficulties and physical displacement of foreclosure caused by two very different sets of circumstance. These moms share the events that led to the loss of their homes in order to educate others and encourage them not to make the same mistakes.

Carolyn's Story
I thought I'd done everything right in purchasing a home. I was a single mom with two children, so I waited until after I finished nursing school and got a good job before starting to look at houses. Unfortunately, a couple years after we moved in, I was injured on the job and couldn't work for six months. Since workers' compensation only paid about a third of my usual salary, I fell behind in paying my bills, including my mortgage.

The phone calls began from the mortgage company when I was about two months past due. Although I tried everything I could to stop them from taking action against me, including sending in a partial payment, the company said there wasn't anything they could do, I was going to lose my home.

I was devastated! There were many sleepless nights when I tossed and turned, trying to figure out what I was going to do, where I was going to go and how I was going to pay for a place to live. My family moved into low-income housing when there was no hope of working things out with the mortgage company.

I'd never owned a home before and didn't have the best credit when I applied for a mortgage loan. Because of my lack of financial experience and knowledge, I allowed the mortgage broker to talk me into a loan that began with a really low interest rate that rose very quickly. During the first two years, my interest rate almost doubled! That made it twice as hard to make the payments after I was injured.

Tina's Story
Neither my husband nor I had lived on our own before we were married, so we were naÏve about the cost of regular monthly bills that go along with owning a home. We both had cell phones, car payments and credit card debt when we bought our house. My husband and I worked different shifts the first five years of our marriage so we wouldn't have to pay for childcare for our four kids. But the more money we had, the more we spent.

Our bank kept allowing us to consolidate our bills with additional mortgages against our home until we ended up with more than $100,000 loaned against a house valued at just over $40,000. My husband and I didn't know where to turn. We were blaming each other and didn't want to endure the embarrassment of telling our families about the mess we had made of our finances.

Giving up our home shocked us into being more responsible with our money. Going through foreclosure provided a daily reminder that our family was more important than material belongings. It wasn't easy, but we've learned to be very cautious about where our money is going. Thanks to our fresh start, one year ago we officially became the owners of our new home.

Avoiding Foreclosure
Since most families live paycheck to paycheck, financial experts suggest maintaining an "emergency" savings account equal to three to six months of your family's income. These emergency funds can tide you over in the event of an injury or job loss. An emergency fund also allows for unexpected home maintenance without having to go further into debt.

Few of us have the discipline to add to our savings immediately after buying a new home—we're more focused on curtains, furniture and new paint. So having an emergency fund in place before buying a home is crucial.

Mortgage lenders use a simple ratio of debt-to-income to determine if you qualify for a home loan. To find out how much of a loan you can afford according to this ratio, add together the following monthly payments:
• All debt reported on your credit report such as auto loans and credit cards.
• Other loans not appearing on your credit report.
• Your estimated mortgage payment including principal and interest, real estate taxes, home owner's insurance and mortgage insurance. (You may have to get some of these numbers from a realtor.)

Take the total of your monthly debts and divide that number by your gross (before deductions) monthly income. The result should be 45 percent or less. If your ratio is above this number, you should come up with a plan to reduce your debt to a more reasonable level or decide to choose a less expensive house.

Remember, it's a family that makes a house a home, not the size of the living space.

Cindy Sumner is the author of six books, including Dollars & Sense: A Mom's Guide to Money Management, published by MOPS International. Cindy is the Chairman of the Board of Sumner National Bank. She and her husband, John, live in Sheldon, Illinois, with their three children.

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