Author Topic: Mortgage article to top all mortgages articles.  (Read 6012 times)

robotclown

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Mortgage article to top all mortgages articles.
« on: December 21, 2014, 09:01:50 AM »
https://homes.yahoo.com/news/how-one-homeowner-bought-a-home-with-a--1-026-down-payment-011843269.html

The highlights:
48, with one bankruptcy on the books already.
$1000 down payment on $185K house.
Three bedroom house for single lady and three dogs.
Despite the down payment and closing costs only totaling $4200, she had to borrow $3500 from her 401K to 'afford' it.

I want so badly to believe this is from the onion or something.  But it's not.

Participant

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Re: Mortgage article to top all mortgages articles.
« Reply #1 on: December 21, 2014, 09:47:09 AM »
What I find so heart-breaking about this article isn't what she did wrong. It's that she did some of it right. You can see that she tried to think it out. She picked a place close to work, which as we all know is often a large part of saving money. She took free classes on the subject to learn more. She did not try to buy a place for the maximum amount she was approved for.

Which makes it all the sadder when you see what she did wrong. She bought a 3 bedroom 1 bath with a 2 car garage when she's living with just her 3 old dogs. She put essentially zero down, giving her $200/month PMI payments. The fact that she had to raid her 401K for the paltry amount she did put down means that she will almost certainly struggle to pay for even the smallest repair in this new house. The article crows about all the money she'll save on taxes since most of her payments for the next 15 years will be wasted on interest, like that's somehow a great thing. They always forget to mention that you lose the standard deduction when you do that. So she'll get to deduct about $9,000 or so (rough guesstimate for what she'll be paying for interest a year) instead of $6,200, saving her about $700 a year, assuming she's in the 25% tax bracket and doesn't have any other significant deductions.

The situation could be salvaged a bit though. I don't know what rent goes for in this area, but taking on a tenant or two for those unused bedrooms would go a long way to getting her finances out of the dumpster fire they're in now.

MgoSam

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Re: Mortgage article to top all mortgages articles.
« Reply #2 on: December 21, 2014, 11:57:36 AM »
There are also a ton of details missing, for instance it doesn't indicate how well she can afford her mortgage, it's possible that it is ok. Also it doesn't mention how much her rent was, so is she actually saving any money?

slugline

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Re: Mortgage article to top all mortgages articles.
« Reply #3 on: December 21, 2014, 03:49:07 PM »
Mortgage numbers do sound ugly. The three-bedroom house may have actually been the best choice depending on the housing stock available in the vicinity of work.

Paul der Krake

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Re: Mortgage article to top all mortgages articles.
« Reply #4 on: December 21, 2014, 04:10:47 PM »
There are also a ton of details missing, for instance it doesn't indicate how well she can afford her mortgage, it's possible that it is ok. Also it doesn't mention how much her rent was, so is she actually saving any money?
Is it even possible to "afford" a mortgage if you can't swing a 5K downpayment without borrowing?

iris lily

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Re: Mortgage article to top all mortgages articles.
« Reply #5 on: December 21, 2014, 04:23:42 PM »

Is it even possible to "afford" a mortgage if you can't swing a 5K downpayment without borrowing?

No. I don't even need any more facts.


Heather in Ottawa

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Re: Mortgage article to top all mortgages articles.
« Reply #6 on: December 21, 2014, 06:47:59 PM »
My first mortgage numbers were nearly identical... on a $32,000 income. I borrowed much of my 'downpayment' on an unsecured line of credit, because I was fresh out of grad school, with no savings, but at least no other debt. Super sketchy. The bank had enough sense even in those days (2005) to be a bit nervous, and my parents were good enough to co-sign (also nervous). But, I knew I could make it, and I did. It was ridiculously tight, though, even with my very frugal habits. I don't think many people could manage that kind of mortgage on an income like mine was, so I sure hope this woman earns more than I did!

FWIW, I got my income up to $55000 just two years later by switching jobs, and was able to get that whole mortgage (and LOC) paid off in 6 years by putting in a lot of DIY and making some very good real estate swaps when I moved cities. So, it's possible. Highly unlikely, though, so I think I have to agree that this article sets a pretty irresponsible precedent.

zephyr911

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Re: Mortgage article to top all mortgages articles.
« Reply #7 on: December 22, 2014, 09:49:42 AM »
What I find so heart-breaking about this article isn't what she did wrong. It's that she did some of it right. You can see that she tried to think it out. She picked a place close to work, which as we all know is often a large part of saving money. She took free classes on the subject to learn more. She did not try to buy a place for the maximum amount she was approved for.

Which makes it all the sadder when you see what she did wrong. She bought a 3 bedroom 1 bath with a 2 car garage when she's living with just her 3 old dogs. She put essentially zero down, giving her $200/month PMI payments. The fact that she had to raid her 401K for the paltry amount she did put down means that she will almost certainly struggle to pay for even the smallest repair in this new house. The article crows about all the money she'll save on taxes since most of her payments for the next 15 years will be wasted on interest, like that's somehow a great thing. They always forget to mention that you lose the standard deduction when you do that. So she'll get to deduct about $9,000 or so (rough guesstimate for what she'll be paying for interest a year) instead of $6,200, saving her about $700 a year, assuming she's in the 25% tax bracket and doesn't have any other significant deductions.

The situation could be salvaged a bit though. I don't know what rent goes for in this area, but taking on a tenant or two for those unused bedrooms would go a long way to getting her finances out of the dumpster fire they're in now.
On top of that, turning part of the house into rental property means instant tax savings.
I paid about the same amount for a similarly sized home, just me and my two dogs, and rented out one spare room, and later both. I was making my mortgage payment with other people's money, and after deducting depreciation, utilities, and all the other things that are only deductible for rental property (not primary residence), I still had a loss on paper.
Then, because that stuff all goes on Schedule E instead of Schedule A, I found something else interesting: the 40% of the house that was actually my home was such a small deduction that the standard actually did more for me.
It's great to own real estate. It's even better to put it to work for you.

Jack

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Re: Mortgage article to top all mortgages articles.
« Reply #8 on: December 22, 2014, 10:32:00 AM »
Is it even possible to "afford" a mortgage if you can't swing a 5K downpayment without borrowing?

Yes, but only if it's because you've just graduated from school and haven't been working very long.

My wife and I bought a house just after I graduated, qualifying based only on her (artist) income. Now that I'm employed, my (engineer) income means our mortgage is only 13% of our gross.

Homey The Clown

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Re: Mortgage article to top all mortgages articles.
« Reply #9 on: December 23, 2014, 08:08:34 AM »

Is it even possible to "afford" a mortgage if you can't swing a 5K downpayment without borrowing?

No. I don't even need any more facts.

I bought my first with $0 down and $0 at closing. The mortgage was only $800 and I had 2 roommates, so it was entirely affordable.

Timmmy

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Re: Mortgage article to top all mortgages articles.
« Reply #10 on: December 23, 2014, 08:25:22 AM »

Is it even possible to "afford" a mortgage if you can't swing a 5K downpayment without borrowing?

No. I don't even need any more facts.

I bought my first with $0 down and $0 at closing. The mortgage was only $800 and I had 2 roommates, so it was entirely affordable.

Ahhh.....  The good ole days of the mortgage world.  I walked away from closing with a check for $2500 having put nothing down. 

Paul der Krake

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Re: Mortgage article to top all mortgages articles.
« Reply #11 on: December 23, 2014, 09:04:28 AM »
The point I was trying to make was that you probably shouldn't be a homeowner if you cannot find a way to save $5k in normal circumstances. This doesn't apply to the more astute no money/low money down investors or MMM readers who would have no trouble finding cash when their water heater breaks.

Jags4186

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Re: Mortgage article to top all mortgages articles.
« Reply #12 on: December 23, 2014, 10:20:25 AM »
The article pisses me off because the author takes a tone of "well look at all these things she did to get into a house...if you are broke you should be able to get into a house as well."  It's congratulatory...

Why do we congratulate people on buying things?  Especially when the person doesn't even have a pot to piss in in the first place?

mydogismyheart

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Re: Mortgage article to top all mortgages articles.
« Reply #13 on: December 26, 2014, 02:10:59 PM »
As a real estate agent, I see all kinds of things people do to get into houses.  Tons of $0 down $0 crap, high PMI, etc. etc. etc. We have a mortgage loan here (and I'm sure others have it too) that is a state bond program, where the buyer literally borrows the down payment from the state as a 2nd mortgage on the home.  The payments are way higher than even on an FHA loan.  But people do it all the time.  It amazes me what people will do to buy a home.  It also amazes me who buys these homes, I have sold single people HUGE 4 bedroom homes before, many times.  I can sort of understand it if they are planning on renting out rooms... but some of them do it just to show off big fancy homes to their friends.  And a lot of them who did it struggled to even get the home in the first place, so I don't know how long the home will actually be their home.  Amazingly, somehow I've never had a client foreclose yet... Although I've only been doing this 4 years...

auntie_betty

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Re: Mortgage article to top all mortgages articles.
« Reply #14 on: December 26, 2014, 03:30:54 PM »
She's 48 and has just taken out a 30 year mortgage?

Facepalm......... to her and the mortgage co's

RFAAOATB

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Re: Mortgage article to top all mortgages articles.
« Reply #15 on: December 26, 2014, 03:44:17 PM »
Where I'm from for most people it's too much to ask for:
1.) All four walls be between your house and the outside instead of someone else's house AND
2.)  What's inside those 4 walls is not a trailer.

If I stretched myself a lot thinner than I'm willing to now I could probably go up to a real estate agent and tell her to get me in my own American Dream house that isn't in the ghetto and a couple steps above American Starter House that isn't a condo.  So now I'm looking at 450k ball and chain and less wiggle room for everything else.  Actually I have no idea what I prequal/pre approve for, but god damn I'm drooling over getting a big house so I can understand everyone else jumping in.

Davids

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Re: Mortgage article to top all mortgages articles.
« Reply #16 on: December 26, 2014, 04:28:18 PM »
As a real estate agent, I see all kinds of things people do to get into houses.  Tons of $0 down $0 crap, high PMI, etc. etc. etc. We have a mortgage loan here (and I'm sure others have it too) that is a state bond program, where the buyer literally borrows the down payment from the state as a 2nd mortgage on the home.  The payments are way higher than even on an FHA loan.  But people do it all the time.  It amazes me what people will do to buy a home.  It also amazes me who buys these homes, I have sold single people HUGE 4 bedroom homes before, many times.  I can sort of understand it if they are planning on renting out rooms... but some of them do it just to show off big fancy homes to their friends.  And a lot of them who did it struggled to even get the home in the first place, so I don't know how long the home will actually be their home.  Amazingly, somehow I've never had a client foreclose yet... Although I've only been doing this 4 years...
Just don't go all mustachian in front of them, you collect your commission and be done with it.

mydogismyheart

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Re: Mortgage article to top all mortgages articles.
« Reply #17 on: December 26, 2014, 05:12:37 PM »
As a real estate agent, I see all kinds of things people do to get into houses.  Tons of $0 down $0 crap, high PMI, etc. etc. etc. We have a mortgage loan here (and I'm sure others have it too) that is a state bond program, where the buyer literally borrows the down payment from the state as a 2nd mortgage on the home.  The payments are way higher than even on an FHA loan.  But people do it all the time.  It amazes me what people will do to buy a home.  It also amazes me who buys these homes, I have sold single people HUGE 4 bedroom homes before, many times.  I can sort of understand it if they are planning on renting out rooms... but some of them do it just to show off big fancy homes to their friends.  And a lot of them who did it struggled to even get the home in the first place, so I don't know how long the home will actually be their home.  Amazingly, somehow I've never had a client foreclose yet... Although I've only been doing this 4 years...

Yup, that's basically what I do...
Just don't go all mustachian in front of them, you collect your commission and be done with it.