Buying a home with no down payment: I know it's a bad idea.. but....

SCARR wrote: Not to be a total ass, but: right now you are living rent free, and you haven't been able to save up a down payment? how do you expect to pay for a house? I mean seriously, you are (lets say) $800+ a month richer (I don't know your cost of living in your area) than people that pay for a house or rent... you SHOULD have 800 a month going into a savings account FOR a down payment. If you haven't been able to save up 10 grand in year, in your situation, you are NOT ready to buy a house. (learn from my mistakes...)

Not necessarily. What if he has it set up to be living paycheck to paycheck, with that money going into an IRA/401k/investment accounts? Especially since you can borrow against a 401k without penalties for your first home.

Although in general you are correct.

z31maniac wrote: Keep in mind, with the low interest rates on a 15 year note (we just did this last year as well and got 3.2%), it may not make sense to pay extra on the mortgage vs investing the money in your 401k/mutual funds, etc.

Once we've wiped the CC balance from everything we're getting/having done we'll be looking at this more closely. It may make sense to pay it down to the 20% mark to lose the PMI, but yeah- with a 3.375% rate on the mortgage there is potentially a lot of other places that the money could be put to use.

In reply to mtn:

Do you think that is the case?

Me neither.

Sorry, Brandon. I'm siding with the majority on this one. Start saving.

Buy a house without a downpayment....what?? You can't do that here. My wife and I had to gather up almost $20k to buy a house, took a lot of scrimping and saving. Also a house under $100k is unthinkable of here....you are looking at $300K plus for anything that you would actually want to live in.

In reply to BoostedBrandon: read the signature in your profile.

Fobroader wrote: Buy a house without a downpayment....what?? You can't do that here. My wife and I had to gather up almost $20k to buy a house, took a lot of scrimping and saving. Also a house under $100k is unthinkable of here....you are looking at $300K plus for anything that you would actually want to live in.

Sounds a lot like the Washington, DC area!

Sky_Render wrote:

Fobroader wrote: Buy a house without a downpayment....what?? You can't do that here. My wife and I had to gather up almost $20k to buy a house, took a lot of scrimping and saving. Also a house under $100k is unthinkable of here....you are looking at $300K plus for anything that you would actually want to live in.

Sounds a lot like the Washington, DC area!

Or NJ. As a former service member I've bought plenty of houses with 0% down thanks to VA loans. Hasn't killed me. I've owned 4 personal residences this way and the payments were always made. Sure it's better to go in with a down payment, but you aren't the devil if you don't.

Fobroader wrote: Buy a house without a downpayment....what?? You can't do that here. My wife and I had to gather up almost $20k to buy a house, took a lot of scrimping and saving. Also a house under $100k is unthinkable of here....you are looking at $300K plus for anything that you would actually want to live in.

Housing prices in the US blow my mind. Average housing price in Canada (national average) is something like $300+k. USA? ~$180k :o

And people wonder why I feel poor earning $65k per year, the average house price in Alberta is about $350k (and I believe that includes condos and townhouses). :(

I’m somewhat with mtn here. We don’t know the OP’s situation. It could be he’s been paying his way through college and just graduated debt free, or he could have come off a period of unemployment and burnt through his savings. If something like that is the case then I’d be OK with Zero down. If not, as most of us assume, then no way in hell would I consider it until you can prove fiscal responsibility to yourselves. Personally I didn’t learn fiscal responsibility until my mid late 20’s, people like mtn are on track to be millionaires before 50.

Having said that there are extenuating circumstances I still wouldn’t buy this particular property because it sounds like from a land point of view it’s way more than is needed, and even vacant land needs a certain amount of maintenance. Why not either buy a similar manufactured home on a much smaller lot like 1-2 acres for (I’m guessing) less than half the price with a view to moving again in a few years. If not that and you are comfortable with a $90K mortgage why not look at a regular house on a smaller lot for the same money, but get a much better interest rate and something that will appreciate? I really don’t see buying nearly 12 acres unless you’re in the situation to buy it outright then build on it with a loan on the house if needed.

Sky_Render wrote: Sounds a lot like the Washington, DC area!

Maybe 50 miles out from DC.

Adrian_Thompson wrote: I’m somewhat with mtn here. We don’t know the OP’s situation. It could be he’s been paying his way through college and just graduated debt free, or he could have come off a period of unemployment and burnt through his savings. If something like that is the case then I’d be OK with Zero down.

I would say that regardless of what led up to this situation, its still a bad idea. Fiscal responsibility or not, its not a great move to make this purchase at this time. You may not need the down payment, but you do need back up cash.

If the OP is fiscally responsible, he'll be back in shape to have a down payment in no time. If he isn't, it'll be a lot longer, or maybe never happen.

In reply to HiTempguy:

You know exactly what Im talking about. We are about 5 minutes south of Edmonton. Living in Alberta is great and all.....but you have to earn Alberta money. We were in Phoenix last week, my uncle has a house in Peoria, and house prices were ridiculous. Our house here, $425-450K, in Peoria....about $160-175K. Gas was less than $1 liter, booze was almost free, cigarettes were half the price, cars were cheaper (and rust free), groceries were cheaper......if we could make what we make here, down there, we would be laughing. A mortgage down there, pfffft, paid off in 10 years, no prob.

Adrian_Thompson wrote: ...people like mtn are on track to be millionaires before 50.

We'll see. That would be nice, but it depends on salary increases, kid expenses, college expenses, life decisions (does either SWMBO or myself quit working to raise kids for awhile?), where the healthcare ends up... As of right now though, if in 6 years I can reach the [current] maximum contribution limits for a 401k, it is feasible assuming a return of 8%.

mtn wrote:

Adrian_Thompson wrote: ...people like mtn are on track to be millionaires before 50.

We'll see. That would be nice, but it depends on salary increases, kid expenses, college expenses, life decisions (does either SWMBO or myself quit working to raise kids for awhile?), where the healthcare ends up... As of right now though, if in 6 years I can reach the [current] maximum contribution limits for a 401k, it is feasible assuming a return of 8%.

Pretty much in the same boat here (actually, hopefully much sooner once my wife finishes college degree #3 and starts making some good $$ :) ). Makes me want to kick 18-22-year old self square in the nuts, because reaching that number at age 40 or so would've been a lot more fun.

Right after posting this I listened to my common sense and determined that this would be a really bad idea. However, I wanna clear up some things.

I was not aware that cars had to be so new to leverage against. our newest car is ten years old.

We went and looked at this house and got all starry eyed and thought about working that payment into our budget but then failed to think about household repairs, insurance, and Lord knows what else. Plus, as a one income family still paying off debt, it's just not in the cards at the moment. I am not a recently graduated student who went to school debt free, however the plan is for me to enter school soon, cash flowing it the whole time. That would be kinda hard to do with house payment, don't ya think? Thanks for the input guys. Firm, but not mean, exactly what I have grown to expect from GRM.

Also, I am trying to get my wife on board with the Dave Ramsey thing, she hasn't quite drank the kool-aid like I have.

BoostedBrandon wrote: Also, I am trying to get my wife on board with the Dave Ramsey thing, she hasn't quite drank the kool-aid like I have.

Do it! Do it!

Just tell her your buddy on the net (namely me) makes a fairly modest living.. Heck my newest car right now is 15 years old... In the next few weeks I am going to walk in somewhere and plunk down cash for one that is less than 5 years old.. We could go newer buy have grown to like the account in which we make a "car payment" each month.

Even though I bought her one for Christmas the wife just came home from a work trip with another Louis Vuitton. She didn't ask, didn't have to... Doesn't bother me a bit as the budgets and the money we have to play with are well known to each other..

Sticking with the Dave Ramsey formula is the not only the best thing you can do for you, but more importantly the best thing you could do for that kid (and your wife).

And any time you feel yourself acting stupid... We can hold you accountable..

Glad to hear you've made the right decision.

Dave Ramsey is a good start, but I'd recommend comparing his methods to others out there too. I disagree with some of his major steps, and so do many real financial gurus.

Wisdom trumps starry-eyed. Good decision, BB. Don't give up on your dreams, just plan for them and prepare.

In reply to ProDarwin:

Which major Dave Ramsey steps do you question?

SVreX wrote: Wisdom trumps starry-eyed. Good decision, BB. Don't give up on your dreams, just plan for them and prepare. In reply to ProDarwin: Which major Dave Ramsey steps do you question?

Mainly:

Ramsey said: List your debts, excluding the house, in order. The smallest balance should be your number one priority. Don’t worry about interest rates unless two debts have similar payoffs. If that’s the case, then list the higher interest rate debt first.

and

Ramsey said: Now it’s time to begin chunking all of your extra money toward the mortgage. You are getting closer to realizing the dream of a life with no house payments

I don't agree with an early mortgage payoff at current lending rates. Your money will earn far more invested properly.

And paying off loans by payoff amount rather than interest rate is silly, UNLESS you are in an OMGDEBTEMERGENCY!!!! and need to close out a loan or two to get your cashflow positive.

OK. I get your logic.

I think the reward aspect of the debt snowball has significance for a huge number of people. The fact is it works (but you're right, it doesn't make a lot of sense).

Ramsey is like AA for debt addicts.

SVreX wrote: OK. I get your logic. I think the reward aspect of the debt snowball has significance for a huge number of people who are bad at math. The fact is it works (but you're right, it doesn't make a lot of sense).

FTFY. Paying off the little stuff first may give people a warm fuzzy but it's not the most efficient way to pay down debt.

mfennell wrote:

SVreX wrote: OK. I get your logic. I think the reward aspect of the debt snowball has significance for a huge number of people who are bad at math. The fact is it works (but you're right, it doesn't make a lot of sense).

FTFY. Paying off the little stuff first may give people a warm fuzzy but it's not the most efficient way to pay down debt.

Yes, we get it.

But your excluding emotion/motivation which has just as large, if not larger, affect on behavior than rational thinking.

I get completely that the 'math' in the Ramsey process doesn't work as well, but that doesn't make it illogical. The emotional aspect IMO is far more important, and the 'snowball' works in those situations much better. Math isn't what gets people in or out of these situations.

Also.. Just because you can earn more interest investing money rather than paying off the home doesn't mean it makes more sense. Having the home paid off reduces risk, and many calculations seem to miss that important aspect.

Beyond that though I think what he preaches works for most, but with my investing I get a little more complex chasing the math's.. I would point out though I am free to do that because my 'home' and the conservative investing has me covered if all else fails.

Remember, Ramsey has to speak the the lowest common denominator/common individual. You may be wise enough to see the "math" but others are not. To keep the message simple..."smallest balance first."

Of course, looking at it another way, again for the common man, going from 5 debts to only 3 debts also reduced your possibility of 5 late payment fees to only 3 late payment fees per month. When you factor those late payment fees like interest, the percentage can be enormous.

As long as it is a fixed rate loan DO IT! Whatever it takes to get your first place. Don't fall into the ARM trap.

Do something you can afford, a fixer even, and think about flipping it to get out from under the loan insurance. Use your equity for a down on the next one.

I bought my first house on a nothing down loan. I painted the front of it, fixed a FU'd sewer line, and cleaned up truck loads (many) of overgrown vegetation. I rented a room so I could bust the nut. Sold it a year later and banked a 100K for a down on the next digs.