20 Year Old Buys Home With $183,000 FHA Loan And Just 3.5% Down (only make$2470 a month)

[Craftsman]

Denise Tejada bought a house last month at the age of 20, thanks in large part to a loan guaranteed by the Federal Housing Authority.

This story offers a dramatic demonstration that, despite the housing bubble causing the worst economic downturn in generations, the ideology of home ownership is alive and well in the United States and still being supported by the government.

Without question, Tejada's loan is toxic--to her and to the taxpayers who are backing the loan. Her house cost $155,000. Tejada's loan was apparently made on a micro-down payment of just 3.5%, the minimum down payment to qualify for an FHA loan. On top of this, however, she got an additional government backed loan to make improvements. Her total loans amount to $183,0000. In short, she was immediately underwater on her new house.

The monthly payments on her debt amount to $1328. Her income is $2470, leaving her with just $285 a week to live on. She's paying 54% of her income to make the mortgage payments. She earns that income by holding down one full time and two part time jobs. Obviously, this woman has a strong work ethic. But it also means her income is precarious. With unemployment still rising, she obviously should be worried about losing one of her three jobs. A loss of one of them would likely leave her unable to make the debt payments.

http://www.businessinsider.com/20-year-old-buys-home-with-183000-fha-loan-and-just-35-down-2009-10

[Craftsman]

1. Have we learned nothing?

[SammyWinstonJack]

2. Apparently not.

:shrug:

[Craftsman]

4. My wife and I bought a home this year, we put 20% down

and payments well below what we can afford to pay. We bought a nice 2240 sq ft home that is what we need. We did qualify for about 200% of the loan we took out but did not want the debt.

[SammyWinstonJack]

5. Good decision.

:thumbsup:

[Barack_America]

7. Yeah, whatever happened to saving money....

...and gradually fixing up your house as you can afford it?

I understand the FHA wants to help people fix up houses in urban areas, but this is the wrong way to go about it. The problem with urban environments is the instability of the neighborhoods and providing people with incentive to flip houses, as the FHA is doing here, only compounds the problem; not to mention potentially screws up home values and taxes for everyone in the neighborhood.

[Craftsman]

16. My wife and I budget about $200 a month for home repairs and improvements

This weekend I was replacing some rotten wood and siding on my home. Last month I put in 2 new gates. I do my own work.

[patrice]

73. Your wife is a lucky woman! Can you cook too?

My first husband was a corporate type, but he loved his garage on weekends, with his radio, and his beer refrigerator. We never paid a dime for auto repairs or maintenance.

[Huskerchub]

78. When I was home shopping early in the year

we looked at FHA, and I was told that the owner/tenant must reside in the house for at least 7 years (may have been 5). Therefor FHA loans are NOT the loan for flipping.

[Butch350]

15. Oh you practical devil you.

[Statistical]

33. Plus the 20% equity means no PMI. which is extra saved money.

The 20% equity was a requirement by us when we bought our house. PMI = wasted money so we looked for properties that our down payment would allow us to avoid PMI on.

[Craftsman]

36. That is one of the reasons why we did this way.

The mortgage banker and our Realtor both wanted us to spend more.

[Statistical]

39. Same here.

It was 30% larger than our apartment. We didn't need anything bigger. Funny thing is our realtor tried to convince us by the profit "logic".

"If the housing market goes up 10% would you rather have a $200K house = $20K profit or $500K house = $50K profit."

[Craftsman]

40. The only profit logic they were concerned about is the profit on the commission

[Statistical]

41. No doubt but I think it also shows the "only can go up" mentality that existed.

I doubt it even occurred to my Realtor (who other than trying to get us to buy too much house was very very good) that if I can gain 50K on 10% upside I can also lose $50K on a 10% decline.

[Craftsman]

44. My dad was a carpenter and contractor for 40 years

I know they can go up and down. I've seen friend's families in high school in the 1980's jingle mail the keys. I bought a nice home in Clear Lake in a great subdivision with some of the best schools in TX. It big as I need and what I can easily afford. And did I mention it is on a 5th of an acre corner lot. I am happy with my choice.

[Ms. Toad]

49. All that sounds so familiar...

we qualified for at least 200% of what we borrowed - and were heavily pressured to buy a much bigger house than we bought.

After my spouse was laid off - twice - we ended up living on about 50% of what we expected to be living on (we expected to have an immediate drop to 70% of what we were making at the time we purchased the home, since I planned to be a stay at home mom). So with an income drop of 65% we were still able to keep our home - and to continue to make an extra mortgage payment a year, which cuts the life of the mortgage (and overall interest) considerably.

20 years later, after having rolled about $20,000 of school debts into the mortgage when we refinanced 10 years ago, we are within a year of being debt free. If we had bought the pricier a home we qualified for we would have lost it (or I would have had to go back to work rather than being able to give our daughter the gift of a full time at home parent for the first 5 years of her life), and we would have missed out on the really wonderful, down to earth, neighborhood we live in.

[paulsby]

46. that was my experience

i told my realtor that the limit on my house price was anything that i could not pay at least 25% down payment on

he looked at me like i had six heads (i only have 5).

he didn't exactly PUSH me, but he just told me that "lots of people" buy houses with less than 20% down, let alone 25%.

i told him that *i* was only comfortable doing it my way, and then he was cool about it.

[wroberts189]

74. +1

[JerseygirlCT]

91. Whatever happened to 20% being the standard?

I'm with you - couldn't have lived with buying more than we could afford.

[Liberal_in_LA]

95. Whatever you qualify for (the max amount), the realtor keeps mentioning that amount. Annoying.

They do that on the HGTV shows. And they act as if the difference between a
homes purchase price and your qualifying amount is cash in hand. "Your qualified for $300,000 and this house costs $250,000 so you'll have $50,000 to fix it up". So stupid!

[n2doc]

3. nope. And we are doomed to repeat out mistakes n/t

[Liberal_in_LA]

94. She's young, she'll learn

[Barack_America]

6. Do they not show people losing their asses on those "Flip This House" shows?

Good luck to Ms. Tejada, but she should probably think about taking on a roommate to keep up with that house payment.

[imdjh]

11. Would you love to face punch that obnoxious flipper guy or what? I can't recall his name.

[Mariana]

62. I wouldn't be surprised if she has already

rented out a bedroom or two. She may need to keep quiet about it if she has, since it may be illegal in her area to take boarders.

[Liberal_in_LA]

96. The eps filmed late 2006 and later, folks lose their asses.

[imdjh]

8. A millionaire in the making, and another "journalist" who didn't bother to learn English. .

Not being afraid of debt along with not being afraid of risk seems to be a time tested tradition for becoming wealthy. That and being able to look someone straight in the face and tell him that a hotdog and a beer is ten bucks.

Denise's mortgage payment is $1400/mo, probably on a house that few of us would consider renting for anywhere near that, if at all. But she knows her neighborhood better than we do, and besides, at her age she can get two roomies in there to knock that down to $400/mo easily, which is the part she's leaving out because someone told her she could get caught with undeclared income.

As for the writer of this article. Denise can be an immigrant or she can be a first generation American, she cannot be both. "Tejada, a first generation immigrant from Guatemala" he writes. Maybe part of the ideological war between "immigrant rights" folks and citizens like me is that some of these folks think that people born in America are immigrants?

Whatever Denise is, she hasn't done anything wrong that I can see. Yes, the housing market sucks and Oakland would not be my first choice for investment, but it's pretty certain that when the market does come back, the places where houses are always in demand will come back first, unless Americans actually get the message this time around.

[ecstatic]

9. After reading the article, I think she'll make it but I don't think it was worth it

She's determined enough and knows what she wants.

That being said, I bought young too (at 25 with an FHA loan--no downpayment!!). I can make my payments but if I had known what I know now I probably would have waited. A lot of people in my neighborhood have foreclosed, so of course, I lost a lot of equity. I'm resigned to the fact that I'll probably just have to be a landlord when I can't stomach this place anymore (which means I'll have to refi to pay off the loan quicker).

Despite me telling everyone about my experience, friends of mine STILL want to do the same thing. They talk about buying a home as if it's some impressive goal to attain. I could have saved SOOOOO much money had I gone a different route.

[ramapo]

10. Hopeless

This woman has no business "buying" this house. What is wrong with lenders?

The economy continues to be a house of cards built upon untenable debt at the personal and governmental levels.

It is all about continuing the fantasy that you can get a lot for next to nothing.

Interest rates need to rise. Credit needs to be much tighter. People need to learn to live within their means. Same for government (and people need to learn to accept that if you want services then these services need to be paid for). I think the chances of this happening are slim to none.

[imdjh]

12. The real question is "Is Denise's house worth $183,000?" If it is, then there is no problem.

[sammytko]

17. This is what you get for 180K in my neighborhood

[sammytko]

19. here's one for 138K

[imdjh]

21. I've been to San Antonio. Nice place.

[Ilsa]

35. Amazing. The same place in other smaller cities like

Bryan/College Station, Victoria, etc would go for about $180,000. Seems like even new housing is cheap around Houston, San Antonio.

[sammytko]

48. Victoria !

That's out kind of in the middle of nowhere. My sister lives in Portland.

I'm always shocked when people in Cali pay 600K for a dump. how can they afford that?

[CrispyQ]

81. $138k????

Gasp!! This house would sell for $300k in my area. More, if it's on as big a lot as it appears to be.

on edit: Our house is 900 sq. ft. & valued at approx $220k. Because housing is so expensive here, we could probably sell it in three days at that price - maybe a little less, but we would not have to go under $210k. Of course, we couldn't afford to purchase anything else... ;)

[imdjh]

20. Yeah, well, Oakland is one of those inexplicable things.

Being close to SF is enough to make Oakland expensive.

[Gormy Cuss]

57. Her house may be worth $180,000-$200,000 depending on the neighborhood.

For anything better than a shell the low end prices right now are about $160,000 to $200,000 in the neighborhoods that aren't the prettiest or lowest crime areas. If she bought the worst house in her neighborhood the value may have increased by nearly 100% of the cost of the improvements.

What I find hard to believe is that the investment in improvements returned three dollars for every dollar spent. The East Bay area is still seeing huge decreases in YTY sales prices and it's driven by the high number of foreclosures in eastern Contra Costa county, Solano county, and some neighborhoods in the cities of Richmond and Oakland.

[Brigid]

13. Um, as others have already said . . .

isn't this how we got into this mess to begin with?

[cbdo2007]

14. There are quite a few holes in this story. Most of the "facts" seem unrealistic even

for the toxic mortgates that got us into this mess.

I'm guessing there's a lot more to this that we don't know, such as someone else being listed on the mortgage with her so their income is included and their collateral (sp?) as well.

[Barack_America]

18. Yeah, I though FHA had strict income requirements.

i.e. that you could only spend a certain percentage of your income on your mortgage.

It's possible that either her father and/or her brother are on the loan as well. However, if they are and as are heavily mortgaged themselves, that is even a bigger problem. We could end up with three (or more) foreclosed houses if Denise loses one of her PT jobs and can't make the mortgage on her house.

[AllentownJake]

26. Restrictions have been loosened

To put a stop gap on the housing crisis. It is well known. The government is playing games to do all they can to force a recovery in anyway they can. This is one of those ways.

[Craftsman]

29. Yep and we will all pay for eventually

[cbdo2007]

54. Yes and there are property requirements as well.

FHA appraisers will find even the smallest details and make you do those before buying. If this house was as bad as she said before she bought it, I doubt they would have approved her an FHA mortgage for it.

My current realtor has said that FHA appraisers are being more strict than ever.

Still, there sounds like a lot to this story that we don't know as it just isn't making sense.

[Johonny]

60. This was close to the deal I was offered this summer

only with a whole lot more money. So this is totally believable to me. Listening to the realitor explain how they were going to work the system to get me the house I was like "WTF hasn't anyone in the system learn from their mistakes!"

[Stinky The Clown]

22. I think she'll make it and I think she'll see a big payoff down the line

I also think she has minimal downside due, mainly to her age. If she loses it all, in many ways she can say "so what" and start all over again. That is far more difficult, to virtually impossible, the closer one is to their peak earning years or the older one is when starting out.

For a 20 year old kid to do this! "You go girl!"

[Tikki]

31. Plus...she may have a secondary income from...

room mate rent. I couldn't see a lot of how the home looked...her improvements to the property may have made it
easier for her to include room mate renters.

Look! now-a-days many family members are doubling up for economic reasons. Two or three
20 year olds sharing a house...sounds more fun than moving in with Mom and Dad.


Tikki

[la_chupa]

23. you have to fight to buy a house you can afford

When we bought our house we had this stupid notion that we would sit down with a budget, figure out what we could pay for a mortgage, take the present value of this amount, determine a price range,and buy a house that was in that price range.

The real estate agent thought that the thing to do was see what we qualifed for and only show us those houses despite the fact that we kept telling her what we wanted to pay for a house. We had to get rude with her to get her to show us houses in our range. I get that we were costing her commission, but she's the one who kept wasting her time and ours showing us places we had no intention of buying.

"oh this is a bit more than you want to pay but it's SOOOO CUTE you just HAVE to see it."

Anyway, we finally bought a house in the range we wanted. Since then I quit work for a year to go back to grad school and both of us have been out of work at various times. Thankfully not at the same time.

If we had bought the house that **they** wanted us to buy we would have had serious issues making those payments. Since we insisted on buying the house we could afford, we can also afford to keep it maintained, pay our bills, and even go on vacation every year - crazy isn't it.

[Alcibiades]

43. The real estate industry has a lot to answer for

Though we bought a house a year and a half ago and had a great realtor. He only showed us houses in our price range, and worked with us for over a year to find the great house with great schools in a great neighborhood. He also gave us a great recommendation on where to get a 30-year fixed rate mortgage--a traditional bank that holds and services their own loans, which we got at 6.25% But he was an older gentleman--I think younger folks raised up on the go-go market of the 10 years before the bubble burst might be a bit different.

Still, these folks earn based on how much the houses they sell cost, not whether folks can actually afford them or whether they can stay in them once the rates. Between that incentive structure and the one developed by the folks who came up with mortgage-backed securities, the cheap credit supplied by the Fed, and mortgage brokers, the whole thing was a giant ponzi scheme built by folks looking for the greater fool than they. The entire industry threw out the rules crafted to insure individual firms in the industry would remain stable, and paid off members of Congress to throw out federal regulations that also worked toward that end for the whole industry, all in the name of short-term profit.

Also culpable, though rarely mentioned, are the folks who built thousands of houses costing more than $400k. In Durham, the median household income is $45,888. Nonetheless they are still building houses that cost more than $400k, with 3,000+ sq. ft. The whole industry has been geared toward getting folks in the biggest house with the biggest payment and the biggest profits for all involved.

[Arctic Dave]

45. My wife and I had a similar experience with our agent.

When we bought our house we only planned on being in it for about two to three years. We said we didn't want anything over 200,000, the first thing she did is take us to homes that were twice that.

[la_chupa]

59. "you'll never make less than you do right now"

This was what she kept telling us. How crazy is that? I suppose that technically over time we're both making more than we were then, but claiming that our income will only go up assumes that we didn't want kids, get sick, or lose our jobs.

[Arctic Dave]

64. Ours the passive aggressive give the place a compliment and follow with a put down.

We finally found a fixer upper at 180,000, which is good because I enjoy DIY projects.
For about the first year she would stop by hoping we would have changed our minds and want move. In the end I find it one of the most convinient places I have ever lived. And, like you we have enough money left over for vacations, toys and investing instead of like a lot of my professional peers that are "a slave to my mortgage".

[Liberal_in_LA]

98. I was told the same thing.. "you'll be making more money", "buy the max you can afford"

I'm so glad I didn't listen and stuck with the plan.

[lumberjack_jeff]

24. Wife and I bought our first house at 21 and 23, respectively.

Everyone said we were nuts. "11.18% interest???"

We sold it five years later for double.

If the house appraises for 183,000+ after her improvements, (presumably it will or she wouldn't have gotten the loan) she's a smart gal. Exclusive of housing, $1000 a month is adequate for a single person to live on.

Poor reporting.

[AllentownJake]

25. The government is desperate to keep the housing market from imploding

and to show improvement in home sales, and yes this what got us into the mess to begin with.

More papering over the problem.

[Craftsman]

27. Bingo

[AllentownJake]

28. Amazing how the simplist answer is usually the correct one

[Craftsman]

30. Anytime you build a house of cards it will fall.

[AllentownJake]

32. We went out and built a smaller one

On a shakier foundation to cover up for the big one that fell.

[Selatius]

79. If what you say is true, we're going to be facing another housing bubble some years from now.

And it's going to be ugly when it explodes.

[Ilsa]

34. Being house-poor gets very tiring. Maybe she needs to get a couple of roommates

to help her so she doesn't wear herself out. She's a couple of paychecks away from being bankrupt. I wonder if she has anymore savings or a family member who can help.

[barbiegeek]

37. Why is Renting so Bad? Please Answer

I lived in apts. for 10 years. Why has renting or being a room mate become so hard or bad?

[Statistical]

42. I think many people "oversell" the financial benefits of home ownership.

There are pros to home ownership but they aren't as powerful as many people think.

[imdjh]

47. There are some decided advantages to renting.

It's funny, it's a very middle class thing to turn up ones nose at renting. Paris Hilton rents her house in Beverley Hills. Does anyone think it's because Paris can't afford to buy a house? If Jackie Kennedy had rented her apartment in New York, would anyone have thought less of her?

I've known some fairly well off people who have never owned a home. They don't want to deal with it.

Personally, I'm about fed up with it. I have owned this house so long that I am now going to have to make up my mind if I am going to start paying for major improvements, or ditch it and go rent something. The cycle has come around, and for what I pay in mortgage I can now rent something much nicer. I can now rent a house that I could probably never afford to buy. Before, it was foolish for me to rent. But not now.

[sammytko]

50. you should think twice about that

my sister and i had this discussion a few days ago. She is 62 and has always rented. I'm 49 and my house will be paid off in 2 years. i'll never have to pay for anything again besides upkeep. Texas just passed a law that gives 100% disabled vets a 100% tax exemption - so won't even have to pay taxes.

I can save the money from the mortgage for improvements. I can do what i want to my house. I hate moving. I pay someone to maintain the yard.

My sister will always have to pay to have a place to live. And rents will just keep going up.

Keep your house.

[imdjh]

53. Yeah, but I have a back-up plan. If rents go too high, I'm moving in with you.

[sammytko]

58. heck no - i'm kicking out the ball and chain cuz

i like to be by myself!!

[Ignis]

83. ...

:spray: :rofl:

[Statistical]

56. Well upkeep, real estate taxes, utilities, maintenance, and insurance.

But other than that nothing else :)

Sure home ownership has advantages but they are often overstated.

[Ms. Toad]

52. If you can afford to buy, it is considerably cheaper to do so

You pay more to rent than you do to own because you are covering the landlord's costs - and paying enough on top of that to give him a profit. (It is almost always cheaper to do something yourself than to pay someone else to do it for your).

It is not hard or bad, if you choose to do so with your eyes open. For some people, renting is more convenient (if something goes wrong - you just call the landlord), requires less commitment (an lease is easier to break than it is to sell your home), more predictable (your costs are fixed - you don't have that unexpected replace-the-water heater-cost, for example). Just remember that each of these conveniences comes at a cost - a part of every rent payment pays for the landlord's profit, labor, and reserve for the eventually needed repairs.

[Xithras]

67. Actually, the truth is that there is little monetary difference either way.

If I rent a house for ten years at $1,200 a month, I'm looking at a $144,000 expense that I will never get back.

If I buy a house for ten years at a cost of $200,000 with a standard 7% 30 year conventional, my mortgage will be about $1300 a month. I will have spent $156,000 during the same period. Assuming standard amortization, I will have paid off about $30,000 on that loan over that decade. NORMAL real estate appreciation rates in a normal economy are 3%-7% depending on market, so I'm going to do my math at the low end of the range at 3%. After a decade, that $200,000 home will be worth about $269,000. By the time I'm done paying all the fees associated with selling it, I'll net about $260,000 from the sale.

The house, at that point, still has an outstanding mortgage balance of about $170,000, so only about $90,000 of that sale price goes into my pocket.

Realistically, more than half of that profit would be eaten up by property taxes, homeowners insurance, and repair bills on the home, but it's still realistic to assume that the owner will walk away with at least a third of it in profit.

The renter spent $144,000 and its gone. The homeowner spent $156,000 and got, for the sake of discussion, $25,000 back after all the bills were paid, for a total expense of about $131,000. The homeowner technically came out ahead by about $14,000, but most investment advisors will tell you that a $14,000 return on a $156,000 investment over a decade is "sue your investment advisor for malfeasance" awful. The only thing worse, of course, is a $0 return on a $144,000 investment.

Realistically, having a home is an expense whether you rent or own. Looking at your place of residence strictly from a financial perspective rarely makes sense, as the real costs aren't all that different either way.

Both, by the way, also have their risks. Renters have little long term security in their homes...landlords can raise the rent, boot you out, and do a number of other things to make your life a hell. Owners don't have to deal with landlords, but they risk down markets (like we're having now) and may lose money when the house does sell.

[Ms. Toad]

68. You're looking at a 10 year window.

Look at a 20 year window and the numbers are very different. The first 10 years of a 30 year mortgage are primarily interest prepayment - a trick so that your payments remain the same over the life of the mortgage - so you are not accumulating much capital during those years which is a key factor in your analysis (only $30,000 of the $156,000 - 20% - pays off the principal). As you near the end of the mortgage, the payments are almost entirely principal and the numbers look very different. Ten years into a 15 year mortgage (with one extra payment a year), about 85% of our payment goes to the principal.

The shorter the window, the better renting looks - but long term there is no comparison. (I believe around 5-6 years is a typical break even point. It is been a long time since I have done the evaluation, but that looks to be in line with the calculations you have done.)

Looking at the bigger picture for a bit longer - with a mortgage, eventually you will own your home free and clear. Rent payments continue forever, shifting the beneficial balance even farther toward owning your home.

This is relevant to your investment analysis. Rejecting purchasing a home as a bad investment isn't really relevant because it isn't as if you could have invested the money if you weren't buying the home - that money, and more for an equivalent home, would have vanished as rent with no return at all - as you pointed out. However much your home increased in value while you owned really just a bonus (I know that is not how home ownership is sold, but it is more realistic to look at it that way than as an investment that you get no value from until you cash out). You get a return on top of the same thing you are paying rent for. In connection to investments, what is relevant would be to look 30 years out (or whenever the mortgage ends) and note that as a renter you will still be paying rent, but as a home owner you own whatever your home is now worth, and on top of that now have access to whatever your mortgage payments were were to actually invest.

In addition, you cannot typically rent a home for the amount of the mortgage payment (part of your assumption) - so your comparison is between apples and oranges, not between apples and apples. To rent the same home you purchased for $200,000 would more likely cost around $2000 a month - around 1% (or more) of its fair market value.

That doesn't mean there aren't valid reasons to rent - convenience of having someone else manage the property, the need to live someplace for a short period (a few years), wanting to build up some liquid assets before tying up the money in a non-liquid house - just that for the long run, looking solely at the financial aspects, the comparison is not even close.

[Xithras]

70. Even in the longer term they aren't a good investment.

At the end of the 30 year mortgage I described above, the homeowner would have made a total of $470,000 in payments on his $200,000 initial purchase. At the end of that period, the home would be work $486,000 assuming 3% uninterrupted annual inflation. Any potential value inflation has been devoured by the interest associated with the mortgage.

That said, my point was that housing really should never be a financial consideration. At best, you'll get your money back. The real advantage of home ownership is freedom and stability. The freedom to live how you want, and the stability of knowing that your landlord isn't going to try to sell your house next month for profit.

I'm not arguing against home ownership, I'm arguing against the idiotic concept that people should buy because it makes financial sense. Unless you're going top spend 30 years living in the same place, it's often a wash financially. There are plenty of other good reasons to own a home though.

[Ms. Toad]

72. You are correct that borrowing money to buy a home

is a lousy investment choice, among all the available investment options. As a general rule, borrowing money to invest is stupid regardless of the investment vehicle. But the decision to purchase home isn't solely an investment decision. Financial decisions are broader than investments. From a financial standpoint, you have to pay (generally) for a roof over your head. Given that large monthly payment of cash will typically be required, the question is whether it is financially better to pay it to someone else (rent) or to pay toward owning your own home; the quality of investment is only a small portion of that financial question.

The financial considerations of rent v. buy decision have two major components: cash flow required to put a roof over your head and investment.

If you are looking at it solely as an investmenthere is the correct comparison: Renting: you lose everything you put into it. Owning: You retain a substantial portion of what you have paid and perhaps even make a profit. From an investment standpoint, recent craziness notwithstanding, ownership with a mortgage is a middling to poor investment decision. Renting, on the other hand, is far worse because you are guaranteed to lose everything.

When you look at it in terms of cash outlay for a place to live, the numbers are a lot closer, at least in the early years. Renting an equivalent space will still, generally, cost slightly more - but the month to month cash outlay is similar.

Over time, however, even the cash outlay considerations gradually tips farther in favor of owning. Rent goes up - the mortgage payment stays fixed. Once you hit the end of the mortgage period, the contrast becomes even more stark. Your mortgage payments are zero, and your rent payments continue forever.

In your example - at the end of 30 years your home owner has a house to live in forever. Your renter has paid the same amount (probably more, because his rent payments would have increased with inflation), and will have to continue to pay forever. The owner can now take the $1300 a month and invest it a quality investment, but the renter will have continue to "invest" $1300 (actually far higher assuming 3% inflation) in a black hole.

Once you get past the break even point on purchase and financing fees, it is far from a wash, financially, unless you completely ignore the 100% loss on your rental "investments" and look solely at what poor investments mortgage payments are (without taking into account you still need a roof over your head). It really isn't comparing apples to apples unless you either ignore, or take into account, the investment quality of both renting AND owning.

There are valid reasons for renting - but any financial advisor who tells you that renting a place rather than purchasing that same place for more than a very few years is a financial wash ought to be fired, since they are only looking at a portion of the financial picture.

[tonysam]

87. A house should be a place to live--NOT an "investment"

Renting is a waste of money, but many people cannot afford to buy. Period.

[Art_from_Ark]

92. Being male with male roommates can be very hard

There will invariably be arguments over phone bills, loud music, sloppiness, share of household work, girlfriends, and a host of molehills that can quickly become mountains. In short, most male roommates tend to cramp each other's styles.

[Liberal_in_LA]

99. and being female with male roomates? lol

[HughBeaumont]

38. This is similar to our friend's story.

I'm leaving nothing out - they were able to get a loan for $180,000 on a 5 year old home. I'm looking around at this thing going "1. Who were the IDIOTS that underwrote, green-lit and signed this?" The guy makes $40k a year AT BEST, and that's with overtime. His wife doesn't work. I don't care how much of a down-payment these people had saved, there'd be no WAY I'd approve of a nearly 5 to 1 home-to-income level. If it's not 2-to-1, it shouldn't be approved. He's looking for a second job to meet other expenses now.

Not to mention 2: Who steered them into buying a newer home? These two have never owned a home outright. Their range should ideally be some of the starter homes in my neighborhood or cheaper (but still safe) neighborhoods that are 30-50 years old with a price range of about $95k-125k at best.

We got ours for $108k and made out like bandits. I love having a mortgage payment that's less than rent. Even in this depressed market, it's still worth $150,000 thanks to all of the improvements.

[letmebefrank]

51. I bought my first town-home at age 19

I was working full time for $7.00 / hr. back in 1987. Renting an apartment for $600/month. One day a local realtor came by and explained how I could purchase a home instead of renting, and end up with about the same monthly expense. Yes, I was barely getting by AND had a roommate. I had about $2000 saved. Purchased a $60,000 town-home with an FHA loan, the interest rate was 10.5%... Shortly thereafter I started a printing company in the 1-car garage, and the company is still in existence to this day. After 10 years, I was able to sell the property for a nice little profit, which allowed me to purchase a 4-bedroom home. Now the equity - even after the 25% reduction in property values over the past 2-years, is well over $150,000. Not to mention the savings every year afforded by a nice tax break. Adjusted to current dollar values, this person probably spent around the same as I did back then in 1987. I'd be proud of her for working hard and trying to achieve the American dream. I think you'll find that most first time home buyers are not stepping up with a 20% down payment.

[Ms. Toad]

55. The entire article is worth a read - it is pretty scary

The author refers to her current view of how much her house is worth as "mark to imagination" - and that sounds about right.

[taught_me_patience]

61. She's now a slave to that home

She has no equity... that home is a liability and not an asset.

[NashVegas]

63. The Realtor Who Made This Deal Should Have Their License Yanked

Along with the title loan officer.

But let's blame FHA, cause that's a gov. program and it's more fun to blame them than it is a private business.

[rd_kent]

65. Why the REALTOR?

A Realtor's job is to find a buyer and a seller and put them together. The Realtor may advise on how much to buy or sell for, but in the end, it is the buyer and seller that makes the decision, not the Realtor. People forget that the TRUE value of a property is the difference between what someone want s to pay for something and what someone will sell that something for.

[Greyhound]

66. 7 million more homes coming back on the books in this and next quarter.

"Fasten your seat belts. It's going to be a bumpy night."

[kaiden]

69. Here's what my husband, a mortgage guy, says about that article:

"Offhand, I'd have to say the article is bullshit. An FHA loan at 97% is standard - there is no FHA "second" she could possibly have gotten on a purchase. FHA's are well documented loans and usually work IF the borrower is not outright lying.

Go read the comments at that site and the FHA attack articles. It's a right wing site. I just wrote them a letter and told them to stop lying."

[rickford66]

71. Build your own

We bought some land, lived in an old trailer for 4 years and built our own solar home as we could afford it. When we moved in, we donated the trailer to VOA. Three other couples I know did the same thing. A rule of thumb is one dollar of materials takes one dollar of labor to install. So, a $100,000 house would cost you roughly $50,000. Stretch that over a few years and it's within reach of most of us. I know it's a lot of work, but you end up saving more than the original costs. Every time you need repairs, you do them yourself. When I was out of work, I never worried about losing our home. Many places won't let you do this of course, but if you can, it's very satisfying.

[patrice]

76. We did that a few houses ago. Worked out quite well for us 10 years later when

his corporation bought the house when they transferred him elsewhere (back when they used to do that sort of thing for transfers).

[ProgressiveEconomist]

84. See post #82. I'd love to read a thread where both of you posted more details about what you did.

[ProgressiveEconomist]

82. Welcome to DU! I would LOVE to see you expand this post into a thread of its own.

Where did you get the plans for your home? Do you have URLs for similar plans?

What kinds of work did you contract out? Did you do your own electrical and plumbing?

How did you deal with adverse weather before you got the roof finished and all the windows weather-tight?

If you had it all to to over again, what would you do differently?

if you do post something more expansive, please be sure to pro9vide a link to it in this thread.

Thanks for posting such an out-of-the-box housing solution.

[rickford66]

100. To answer your questions

I'll answer any and all questions about building my own home.
Someone will have to tell me how to contact each other privately for
more details or photos etc.

Where did you get the plans for your home? Do you have URLs for similar plans?

I started in 1980 reading Mother Earth etc. I sent for some plans
which turned out to be very vague so I designed my own.

What kinds of work did you contract out? Did you do your own electrical and plumbing?

I'm an electrical engineer and was an electrician in the Navy
Seabees and in industry for a while. I helped my father remodel
his home over the years and we re-did an old school house as our
first home. So I had some skills, experience and confidence, but
I didn't do anything the average person couldn't do.

I hired a company to build the foundation.
I hired a someone who built a home for a friend. He refined my
design and he and his then girlfriend built shell for me. My
wife and I helped with the work. We took over when the exterior
walls were sheathed in plywood and the roof covered in roofing paper.

I shingled the roof, installed the windows, doors and siding.
Then insulated, built the interior walls, did the electrical
and plumbing and finished the interior. I had the builder build
our kitchen cabinets. My wife helped with the hardwood floors,
sheet rocking and painting.

If you had it all to to over again, what would you do differently?

You always would do things differently. An architect once told
me he built seven or eight homes for himself and still wasn't
satisfied. We built a passive solar envelope home here in up
state New York. We can get by with no additional heating. We
do have a couple small electric heaters and a wood stove.The
heaters are only used occasionally. In the bathroom we use one
only on the coldest days. We burn less than two cords of wood
a year. For many years it was one cord a year, but my wife
spends more time at home now. Our home, with no heat, overcast
days, in the middle of winter will get no colder than 50 deg F.
We can leave, knowing our pipes won't freeze. We also use a
tank less water heater. It takes a little getting used to, but
saves money. One thing I would do over again would have solar
electric. Maybe an entire 12 or 24 volt house.

It took us four years to build but we only worked on it for about
half that time. We would stop when we ran out of money for materials.
We used locally cut lumber, some green. We have no particle
board, insulation or other materials which could out-gas. Since our
home is very air-tight, we also have an air to air heat exchanger to
exhaust stale inside air and bring in fresh outside air while
capturing the heat.

[ProgressiveEconomist]

101. Thanks for getting back to me with a great post.

It sounds as though you relied on outside contractors for much of the initial, weather-threatened work and then took your time finishing out the interior.

Great story, and great idea for saving huge on housing. Thank you.

[rickford66]

102. Thanks for your interest

We insulated the exterior of the foundation, so we had lots of directions for that contractor. We worked with the carpenter for a good portion of the work. The frame of the house is post and beam which allowed us to build with no load bearing interior walls. So, we had plenty of time to work out the floor plan. The carpenter was an expert on this type of construction which is why we picked him. We had an old fashioned barn raising to put up the first few bays. Some beer was consumed. I could have built the shell myself the traditional balloon framing method but it would have taken more time than I wanted.

[quiller4]

75. Her housing expense went down with the purchase. Her rent had been over $1600 n/t

[Ruby the Liberal]

77. The FHA is offering underwater loans with a 54% of income?

:wtf: :wtf: :wtf:

FHA used to be 20% (without PMI) and no more than 30% of income.

[SoCalDem]

80. and in a year or so when Denise has a baby, she will be homeless or

crashing on a relative's house.

Denise would have been better off to find a $1200 a month rental house to SHARE with 3 other young singles, and bank the $1,028 a month she would be saving...

Denise does not realize also, that when the furnace breaks or the roof leaks or so many other house-related calamities occur, she cannot call the landlord..

[robo50]

85. What stupid bank mortgage officer can give out a loan like this?

To a 20 year old, no substantial credit history, no stability of years in a job, (maximum 3 since High School)

This is simply NUTS!!!!!!!!!!

This person is NOT QUALIFIED, period, for a loan of that size!

I have a feeling banks have figured out ways to sell houses to someone like this, repossess it, and resell it at a profit a few years later... it's all a bank con game.

[sentelle]

86. Has anyone in the mortgage industry ever heard of the 24/36 rule

When My wife and I were shopping mortgages, we were told of the 24/36 rule.
That this meant is that we calculated our loans, and if they were more than 24% of our monthly earnings, we could not afford a mortgage.

The amount that it would be safe to borrow is the amount that is equal to 36% of the monthly income. Based on the numbers above, on a monthly income of $2470, the mortgage should be less than $889.10 in order to be able to actually pay the mortgage stably. This is clearly being ignored.

[izzybeans]

88. Something doesn't add up.

As someone with an FHA loan, this story sounds fishy. There is a variable missing. But judging the hit pieces that that website has on the FHA I'm sure only the author knows what that is.

Another blame the poor article.

[TexasObserver]

I'll bet on any 20 year old with three jobs and a home.

Color me IMPRESSED.

I shutter to think of the debt she has taken on, and think it's probably unwise, but she strikes me as a driven person who will be running her own business by the time she's 30. If she finds herself short, she can sell off an interest or take in a roomer.

[varelse]

89. Interesting background on the author

His writing often takes controversial positions on business topics. He has argued that failed banks should not be bailed out, Lehman’s collapse was not a disaster, AIG should be declared bankrupt, that naked short selling is not a problem, that backdating isn't so bad, insider trading should be legal, many corporate CEOs are underpaid, global solutions are worse than local solutions, Warren Buffett is overrated, Michael Milken is a great American, the collapse of the hedge fund was not a scandal, hedge funds are over-regulated, education is overrated by the educated, bonuses at successful Wall Street's firms are deserved and possibly undersized, management buyouts are boons to the economy, Enron's management was victimized by an over-zealous prosecution, Sarbanes-Oxley should be repealed, corporate compliance culture is a disaster, shareholder democracy is overrated, hostile takeovers ought to be revived, the market is permanently moving away from public ownership of equity in corporations, private partnerships are on the rise, public ignorance is encouraged and manipulated by governments and corporations, experts overrate expertise, regulatory agencies are controlled by the businesses they supposedly regulate and Wall Street is much more fun than people give it credit for.

http://www.businessinsider.com/john-carney

[nadinbrzezinski]

90. We'd be pushing the limits wth 120K

but realize many of our "kids" have no clue of any of this.

[the other one]

93. Buying a home doesn't make sense v. renting

if the propery is going to lose 10% value per year. Then you are paying rent and losing principal at the same time. Let the landlord take the loss AND replace my carpets.

[LeftyMom]

97. At 20 I'm going to guess she plans on having roommates for some time.

In which case that's totally doable. Easy, even.

The real question is how somebody with three jobs only makes $2500/mo. That's refuckingdiculous.