Author Topic: I can totally buy a house right?!?!?!  (Read 9957 times)

gardeningandgreen

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I can totally buy a house right?!?!?!
« on: July 21, 2015, 08:36:24 AM »
So I have a coworker who just bought a house last week. This would be all fine and dandy as for the most part mortgage paymets around where I live are less than rent and there are tons of housing options in the city I live in. The problem is that she just got out of a very long relationship, has absoultely no money saved up(litterally zero dollars), and an ok credit score. She also has a significant amount of debt built up from student loans, a NEW car and credit cards.

She went through this program called the american dream which is basically a program to get people who have no money to buy a home. They have to go through some classes and then they are given a loan with no closing costs and no down payment. This all just seems crazy to me. Isnt this part of the reason the whole sub-prime mortgage thing happened?

Examples of why she shouldnt have gotten the house:When she had to do the inspection she wanted to put it on her credit card but she had to write a check and was panicing about that because she didnt have the $300 in her acctount to cover it. She was concerned becuase she had to put some ernest money down(which she would get back later) and she wasn't sure she could make that happen either.

It just baffles me that she would have gone through with this. OH Also the house is a 35 minute drive because she liked the house more. We also live in a city that is a border city(2 states) and she chose the state with higher taxes. I dont understand!?!?!

zephyr911

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Re: I can totally buy a house right?!?!?!
« Reply #1 on: July 21, 2015, 10:22:58 AM »
So I have a coworker who just bought a house last week. This would be all fine and dandy as for the most part mortgage paymets around where I live are less than rent and there are tons of housing options in the city I live in. The problem is that she just got out of a very long relationship, has absoultely no money saved up(litterally zero dollars), and an ok credit score. She also has a significant amount of debt built up from student loans, a NEW car and credit cards.

She went through this program called the american dream which is basically a program to get people who have no money to buy a home. They have to go through some classes and then they are given a loan with no closing costs and no down payment. This all just seems crazy to me. Isnt this part of the reason the whole sub-prime mortgage thing happened?
Yes, it is. Not everyone should be a homeowners. There are reasons for homebuyers having to qualify. There were reasons why it was hard to get a house without 20% down for so long - if you can't live below your means deliberately and for long periods of time, you're a credit risk.
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Examples of why she shouldnt have gotten the house:When she had to do the inspection she wanted to put it on her credit card but she had to write a check and was panicing about that because she didnt have the $300 in her acctount to cover it. She was concerned becuase she had to put some ernest money down(which she would get back later) and she wasn't sure she could make that happen either.
For fuck's sake, that is pitiful. Good luck to her when her roof leaks. Which it will, because she'll ignore minor damage over time to avoid paying the deductible that she doesn't have, and then a big one will peel that fucker like a tuna can.
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It just baffles me that she would have gone through with this. OH Also the house is a 35 minute drive because she liked the house more. We also live in a city that is a border city(2 states) and she chose the state with higher taxes. I dont understand!?!?!
Yeah, she's in deep shit. She'll lose the house eventually. I'd bet money on it, except, I'm investing it instead ;)

MgoSam

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Re: I can totally buy a house right?!?!?!
« Reply #2 on: July 21, 2015, 10:28:22 AM »
If it's a good home and renting it out would make sense to you, eventually she may be forced to foreclose on it. Maybe you would be able to take ownership by assuming the mortgage?

zephyr911

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Re: I can totally buy a house right?!?!?!
« Reply #3 on: July 21, 2015, 10:30:31 AM »
If it's a good home and renting it out would make sense to you, eventually she may be forced to foreclose on it. Maybe you would be able to take ownership by assuming the mortgage?
Not after it falls into disrepair because the owner never had the funds for basic maintenance. Shit tends to snowball, especially if water is involved.

zephyr911

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Re: I can totally buy a house right?!?!?!
« Reply #4 on: July 21, 2015, 10:45:58 AM »
We're selling our house to someone similar. They are getting a 100% VA loan and are asking us to cover $3k closing costs because they have no money. So they will bring basically nothing to closing and the realtor said this is the absolute most they can afford. So yeah, if the sale goes through I'm expecting to see it in foreclosure in a couple of years.

Oh, and it's in a small town (population ~2k) about 25 miles from most jobs so there's a good chance they're driving at least 50 miles a day, closer to 70 if they are still military.
Which kind of car are they using for that? A Tahoe or a Hummer? :P

(I'm not judging them. I understand that their {toddler/Pomeranian/laptop} must be kept safe)

gReed Smith

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Re: I can totally buy a house right?!?!?!
« Reply #5 on: July 21, 2015, 10:53:34 AM »
She went through this program called the american dream which is basically a program to get people who have no money to buy a home. They have to go through some classes and then they are given a loan with no closing costs and no down payment. This all just seems crazy to me. Isnt this part of the reason the whole sub-prime mortgage thing happened?

That's a double edged sword.  The government loves to encourage home ownership because it is the main wealth accumulator for most people.  It also looks great on a list of economic statistics, and these types of programs tend to disproportionately benefit minorities, which can be a nice boost.  But, for every hard working honest person who will use the leg-up to get life on track, there are probably four who will fail, and the house will be an anchor that sinks them. As long as housing prices are trending up, the banks can cover their loses with foreclosures.  But in 2007-09, something that has never happened before happened.  There were so many foreclosures that housing prices went down nationwide, and the banks couldn't cover their losses by selling the homes.  So, it's nice to help people buy homes; but it comes at the risk of increased foreclosures.

ncornilsen

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Re: I can totally buy a house right?!?!?!
« Reply #6 on: July 21, 2015, 11:52:02 AM »
I barely qualified for a program just like it back in 2010... used it to snag a massively underpriced home 6 months sooner than I otherwise would have. 5 years later, it's worked out well for me.   

Unfortunately, things don't bode well for this lady.

slugline

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Re: I can totally buy a house right?!?!?!
« Reply #7 on: July 21, 2015, 12:32:08 PM »
Having mortgage payments less than rent ought to be a given and nothing to be truly excited about, because -- guess what -- buying a house means you've just insourced the job (and costs) of landlord and property manager! I'm going to guess that this coworker isn't going to be saving the difference in anticipation of repairs of maintenance. . . .

Eric

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Re: I can totally buy a house right?!?!?!
« Reply #8 on: July 21, 2015, 12:40:04 PM »
Of course this program is called the American Dream Program!  How many people could they get to sign up if they called it the Financial Albatross Program?  Thank you National Association of Realtors. 

Eric

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Re: I can totally buy a house right?!?!?!
« Reply #9 on: July 21, 2015, 01:04:25 PM »
Isnt this part of the reason the whole sub-prime mortgage thing happened?

She's certainly a sub-prime borrower.  But if you're asking if this is what caused the Great Financial Crash, then sort of, but not really.  Sure, lending standards were more relaxed then, but there have long been sub-prime borrowers.  The lenders usually make up for it by lending at a higher rate, or in this case, the loan is backed by federal money so there's no extra risk.  The bigger cause of the GFC was the fact that the financial institutions decided to package a number of these loans together (Collateralized Debt Obligations, or CDOs) and then sell them as if they were investment grade products instead of junk grade speculation investments.  This was exacerbated by the fact that the rating agencies didn't have a good grasp on what exactly was being sold (somehow it was decided that there was a low risk of a mass default, even though they were all high risk individually), so they rated it a lot higher than it should've been.  Then all it took was a recession.  Well, in any recession, people who lose their jobs lose their houses.  But in this one, the CDOs were bought and sold with leverage, so many financial institutions didn't have the required cash to cover the payouts required when the underlying individuals stopped making their payments.

So in short, the GFC can't happen without leveraged investments.  Defaults happen in every recession.  The fact that some people do default doesn't make them the cause.
 

Jack

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Re: I can totally buy a house right?!?!?!
« Reply #10 on: July 21, 2015, 01:12:37 PM »
I barely qualified for a program just like it back in 2010... used it to snag a massively underpriced home 6 months sooner than I otherwise would have. 5 years later, it's worked out well for me.   

Unfortunately, things don't bode well for this lady.

Exactly!

Idiots are gonna be idiots. What we should be taking away from this instead is that these idiotic programs can be used to our Mustachian advantage! I've already bragged about the deal I got in other threads so I won't annoy y'all with it again, but yeah, it was good.

trailrated

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Re: I can totally buy a house right?!?!?!
« Reply #11 on: July 21, 2015, 01:18:30 PM »
Isnt this part of the reason the whole sub-prime mortgage thing happened?

She's certainly a sub-prime borrower.  But if you're asking if this is what caused the Great Financial Crash, then sort of, but not really.  Sure, lending standards were more relaxed then, but there have long been sub-prime borrowers.  The lenders usually make up for it by lending at a higher rate, or in this case, the loan is backed by federal money so there's no extra risk.  The bigger cause of the GFC was the fact that the financial institutions decided to package a number of these loans together (Collateralized Debt Obligations, or CDOs) and then sell them as if they were investment grade products instead of junk grade speculation investments.  This was exacerbated by the fact that the rating agencies didn't have a good grasp on what exactly was being sold (somehow it was decided that there was a low risk of a mass default, even though they were all high risk individually), so they rated it a lot higher than it should've been.  Then all it took was a recession.  Well, in any recession, people who lose their jobs lose their houses.  But in this one, the CDOs were bought and sold with leverage, so many financial institutions didn't have the required cash to cover the payouts required when the underlying individuals stopped making their payments.

So in short, the GFC can't happen without leveraged investments.  Defaults happen in every recession.  The fact that some people do default doesn't make them the cause.

Reminds me of the South Park explanation ;) https://www.youtube.com/watch?v=wz-PtEJEaqY

gardeningandgreen

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Re: I can totally buy a house right?!?!?!
« Reply #12 on: July 21, 2015, 01:53:19 PM »
If it's a good home and renting it out would make sense to you, eventually she may be forced to foreclose on it. Maybe you would be able to take ownership by assuming the mortgage?

Its in a very small town around 1k population and quite a distance from most jobs in the area. So would be quite difficult to rent. A good posibility for a buy and resell but I dont want to get into things like that.

MgoSam

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Re: I can totally buy a house right?!?!?!
« Reply #13 on: July 21, 2015, 02:10:29 PM »
If it's a good home and renting it out would make sense to you, eventually she may be forced to foreclose on it. Maybe you would be able to take ownership by assuming the mortgage?

Its in a very small town around 1k population and quite a distance from most jobs in the area. So would be quite difficult to rent. A good posibility for a buy and resell but I dont want to get into things like that.

Noted, but yeah. People unfortunately are going to make very foolish decisions, if I am not able to help them, then my next thought process is to try to see if I can make money off of their mistakes.

MsPeacock

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Re: I can totally buy a house right?!?!?!
« Reply #14 on: July 21, 2015, 02:39:28 PM »
Had a number of friends w/ a lot of debt and limited income during the sub-prime boom who were convinced they could/should buy a house because the mortgage payment was "lower than rent." All failed to factor in property tax payments and maintenance, and had absolutely no concept of how expensive it can be to maintain a house. At the time there were tons of ads and such for developments and loans w/ "buy this house with zero down" and "monthly payment only $600 per month" and such. For financially unsophisticated people this sounds like a great deal - a house (!) for cheap (!) with no down payment (!) and all that overshadows the financial reality and the lenders, sellers, etc. have no interest in providing a more accurate assessment of the consequences and costs.

I think zero down on a house is a horrible idea - VA loan or otherwise.

bzzzt

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Re: I can totally buy a house right?!?!?!
« Reply #15 on: July 21, 2015, 09:17:58 PM »
Lol, that's a good question, I'll have to ask DH if he noticed it. Though judging by the fact it's a $142k house they can barely afford I'm doubting Hummer, probably more like an old Suburban. Apparently they were a little over excited about things like a garbage disposal, working dishwasher, and water lines for a fridge to be accustomed to anything approaching luxury

That is crazy. We bought a house almost that expensive and we make about 3 times the median family income. We had the 20% down, plus emergency fund, two paid off cars, I'm good at remodeling/repairs, and I still don't like the risk (very risk averse personality). Maybe I'd be more comfortable if we had a garbage disposal and water lines for the fridge...

People make such emotional decisions that it's no wonder most people are broke.

Bob W

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Re: I can totally buy a house right?!?!?!
« Reply #16 on: July 22, 2015, 07:44:47 AM »
She bought a mortgage secured by real estate.  She can lose the house through foreclosure and still own the mortgage.   On a related note my wife recently thought a $500 a month 1 week time share was a good deal.   Luckily I was there.  People are just bad at math and buy on emotions.

zephyr911

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Re: I can totally buy a house right?!?!?!
« Reply #17 on: July 22, 2015, 01:25:27 PM »
I think zero down on a house is a horrible idea - VA loan or otherwise.
I've benefitted from it in the past but I definitely see the reasoning. And TBH, the last time I bought with a 100% VA loan, it was a dumb purchase, especially from an investment standpoint. Four years later, I'd still be lucky to sell it without bringing cash to the table, and no, I haven't done a cashout refi. I should have stayed in the place I had, with my two roommates paying the mortgage and utilities, stopped blowing money on dumb shit, and saved up for a down payment.

Jack

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Re: I can totally buy a house right?!?!?!
« Reply #18 on: July 22, 2015, 09:01:07 PM »
Lol, that's a good question, I'll have to ask DH if he noticed it. Though judging by the fact it's a $142k house they can barely afford I'm doubting Hummer, probably more like an old Suburban. Apparently they were a little over excited about things like a garbage disposal, working dishwasher, and water lines for a fridge to be accustomed to anything approaching luxury

That is crazy. We bought a house almost that expensive and we make about 3 times the median family income. We had the 20% down, plus emergency fund, two paid off cars, I'm good at remodeling/repairs, and I still don't like the risk (very risk averse personality). Maybe I'd be more comfortable if we had a garbage disposal and water lines for the fridge...

People make such emotional decisions that it's no wonder most people are broke.

My house came with a garbage disposal and water lines for the fridge, but I ripped the former out (I couldn't care less about using a garbage disposal) and put my fridge diagonally across the room from the latter (because the intended location was a stupid layout).

I think zero down on a house is a horrible idea - VA loan or otherwise.
I've benefitted from it in the past but I definitely see the reasoning. And TBH, the last time I bought with a 100% VA loan, it was a dumb purchase, especially from an investment standpoint. Four years later, I'd still be lucky to sell it without bringing cash to the table, and no, I haven't done a cashout refi. I should have stayed in the place I had, with my two roommates paying the mortgage and utilities, stopped blowing money on dumb shit, and saved up for a down payment.

Huntsville hasn't appreciated since the housing crash?

zephyr911

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Re: I can totally buy a house right?!?!?!
« Reply #19 on: July 23, 2015, 08:11:08 AM »
Huntsville hasn't appreciated since the housing crash?
Generally, the trend is slightly up, but my case is not representative. I bought post-crash in a high-end neighborhood that I thought had bottomed out after its foreclosure wave, and was making the right moves by allowing smaller homes to bring in a wider base of buyers. Unfortunately, my development itself crashed - the builder made a bunch of dumb mistakes, only closed on 4-5 units in the two 4-plexes they had completed, and then folded, leaving another 50 or so lots empty. The place next to mine, a mirror image of it, sold for 130K to my $178K, and the land sat empty for over three years before they finally started building again (just before I moved out).

Values have mostly recovered, but the new homes they're building are slightly nicer for about the same per-SF price I paid, and commissions alone would probably eat my sliver of equity. So this is a good example of 100% financing eliminating the wiggle room when the unexpected happens. If I were cash-poor, this would be a very distressing scenario where one more surprise would lead to foreclosure.

NoraLenderbee

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Re: I can totally buy a house right?!?!?!
« Reply #20 on: July 24, 2015, 06:09:34 PM »
Of course this program is called the American Dream Program!  How many people could they get to sign up if they called it the Financial Albatross Program? 

LOL!

horsepoor

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Re: I can totally buy a house right?!?!?!
« Reply #21 on: July 27, 2015, 09:55:15 AM »
We're selling our house to someone similar. They are getting a 100% VA loan and are asking us to cover $3k closing costs because they have no money. So they will bring basically nothing to closing and the realtor said this is the absolute most they can afford. So yeah, if the sale goes through I'm expecting to see it in foreclosure in a couple of years.

Oh, and it's in a small town (population ~2k) about 25 miles from most jobs so there's a good chance they're driving at least 50 miles a day, closer to 70 if they are still military.
Which kind of car are they using for that? A Tahoe or a Hummer? :P

(I'm not judging them. I understand that their {toddler/Pomeranian/laptop} must be kept safe)
Lol, that's a good question, I'll have to ask DH if he noticed it. Though judging by the fact it's a $142k house they can barely afford I'm doubting Hummer, probably more like an old Suburban. Apparently they were a little over excited about things like a garbage disposal, working dishwasher, and water lines for a fridge to be accustomed to anything approaching luxury

Sounds like the people who bought our old house for $118K.  They freaked when they saw the tax bill without the homeowner exemption, which was going to add $100/month for like 3 months; their parents said they'd float them the difference until the exemption kicked in in the new calendar year.  Saw them cruise by when we were trimming the trees - driving a big older Expedition, of course.  And smoking cigarettes.

MgoSam

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Re: I can totally buy a house right?!?!?!
« Reply #22 on: July 27, 2015, 12:19:47 PM »
I feel another housing bust coming....

Kitsune

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Re: I can totally buy a house right?!?!?!
« Reply #23 on: July 27, 2015, 12:28:46 PM »

[/quote]Lol, that's a good question, I'll have to ask DH if he noticed it. Though judging by the fact it's a $142k house they can barely afford I'm doubting Hummer, probably more like an old Suburban. Apparently they were a little over excited about things like a garbage disposal, working dishwasher, and water lines for a fridge to be accustomed to anything approaching luxury
[/quote]

Oh, gawd, the arguments we just had with our contractor over not wanting a garbage disposal or water lines to the fridge...

Him: "But! Resale value! Everyone expects this!"
Us: "But! Spring water coming out of the tap!! Garbage disposal fills up the sceptic tank which will then need emptying more often! WHY would we use these things??|"

(We're installing the hookups for a dishwasher, and using the 20-year-old, works-perfectly-well dishwasher that my parents just took out during their kitchen remodel because, and I quote, "it doesn't match the fridge". Would I like a new dishwasher that's prettier? Sure. Would I like it enough to pay 500$ for it when we have a perfectly good option for at least the first year or two? What, do I look stupid?)

EricP

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Re: I can totally buy a house right?!?!?!
« Reply #24 on: July 28, 2015, 12:48:40 PM »
I feel another housing bust coming....

Sure, there's probably some bubbles in some areas, but we've put in place a number of protections that will prevent a massive recession if another housing bust occurs.

Jack

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Re: I can totally buy a house right?!?!?!
« Reply #25 on: July 28, 2015, 01:04:54 PM »
Oh, gawd, the arguments we just had with our contractor over not wanting a garbage disposal or water lines to the fridge...

Him: "But! Resale value! Everyone expects this!"
Us: "But! Spring water coming out of the tap!! Garbage disposal fills up the sceptic tank which will then need emptying more often! WHY would we use these things??|"

I can understand the contractor's insistence on both those things, since they really do add resale value and it's a lot easier to add them during construction than after. Just because there's wiring for the disposal and plumbing for the fridge water doesn't mean you have to use it.

(Also, keep in mind that the water line to the fridge is useful for running the icemaker, not just providing filtered water.)

Kitsune

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Re: I can totally buy a house right?!?!?!
« Reply #26 on: July 28, 2015, 01:51:18 PM »
Oh, gawd, the arguments we just had with our contractor over not wanting a garbage disposal or water lines to the fridge...

Him: "But! Resale value! Everyone expects this!"
Us: "But! Spring water coming out of the tap!! Garbage disposal fills up the sceptic tank which will then need emptying more often! WHY would we use these things??|"

I can understand the contractor's insistence on both those things, since they really do add resale value and it's a lot easier to add them during construction than after. Just because there's wiring for the disposal and plumbing for the fridge water doesn't mean you have to use it.

(Also, keep in mind that the water line to the fridge is useful for running the icemaker, not just providing filtered water.)

Well, kinda.

1) If we sell this house, it will be because of absolutely wild circumstances: we're building this house in the town where my husband has roots 7 generations back, next to his parents, etc. We're basically planning on retiring here and leaving when we're too elderly to live on our own (and we're 30 now, so...) Let's just say resale value isn't our primary concern, use is. (And also, if we were concerned about resale value, we wouldn't be building here: it's a small town and real estate doesn't really budge.)

2) These things add value in US cities... not so much for country houses. Honestly, everyone out here runs on a septic tank, and everyone understands that garbage disposals are basically the worst. Nearby cities have bylaws restricting their use, since they're so bad for the water filtration systems (and note: we don't pay for water here). Would it add value? Maybe a bit. Would it add enough to deal with the maintenance without using it? Hells no... (And for the fridge water... MAYBE. But you know what's cheaper than a fridge that makes ice cube and filters your spring water? A 200$ ice cube maker.)

crispy

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Re: I can totally buy a house right?!?!?!
« Reply #27 on: July 28, 2015, 02:21:32 PM »
We are in the process of downsizing because we have been hit with the realization that we can pay off a smaller house withing the next year or so which will help accelerate our retirement and financial goals a lot.  We also realized that we have too much house and were wasting a ton of resources for rooms we don't use like a 4th bedroom, a formal dining room, and a 3rd bathroom. I figure if family wants to visit, they can rent a hotel room like we do when we visit them.

The first offer we received was low and was asking for a huge amount for closing.  We gave a reasonable counter, and the couple countered that they had NO money set aside for closing.  They are going FHA and only enough of a downpayment to qualify for the loan, and the offer they gave us was the max that the bank would lend them.  They have no business buying any house especially one that is fairly large and expensive.  It's especially odd when we know we can afford, but realize that we shouldn't because it's not the best use of our resources.


fattest_foot

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Re: I can totally buy a house right?!?!?!
« Reply #28 on: July 28, 2015, 02:33:59 PM »
We're selling our house to someone similar. They are getting a 100% VA loan and are asking us to cover $3k closing costs because they have no money. So they will bring basically nothing to closing and the realtor said this is the absolute most they can afford. So yeah, if the sale goes through I'm expecting to see it in foreclosure in a couple of years.

Oh, and it's in a small town (population ~2k) about 25 miles from most jobs so there's a good chance they're driving at least 50 miles a day, closer to 70 if they are still military.

I wouldn't assume (although, it may be safe to just because most people are idiots). We just bought a house in June. 100% VA loan and we tried to get the seller to cover all closing costs. I would imagine our realtor probably told the seller something similar to what yours did, because we didn't volunteer much about our finances.

But it made more sense for us to finance all of it because we got a 3.25% interest rate. I wanted to pay as little money as possible out of pocket because it was cheap to.