How one homeowner bought a home with a $1,026 Down Payment

[dmcowen674]

12-1-2014

https://homes.yahoo.com/news/how-on...ome-with-a--1-026-down-payment-011843269.html

How one homeowner bought a home with a $1,026 Down Payment



After renting for quite a few years, Shirley Schweizer of Thornton, Colo., wanted to buy a home close to her work and for little money out of pocket. She had lost a house five years earlier because of bankruptcy


The Two Loans That Helped Schweizer Get Her House

Schweizer paid a total of $4,278 to buy her house. Some of it came from savings and $3,500 was borrowed from her 401(k). She put $1,026 towards the down payment and $3,252 towards closing costs.
Thomas arranged for her to get two separate loans from the Colorado Housing and Financing Authority (CHFA), which offers special incentives with its loans.
“Since CHFA is selling both loans, all of the money (earnest money, seller concessions, first loan amount, second loan amount, and any additional funds the buyer pays towards closing costs) is thrown in the pot, and the title company disburses the funds to whoever is supposed to get them,” Thomas says.

Schweizer qualified for the CHFA’s FHA loan at a 4.75 percent interest rate, 3.5 percent down payment and a 30-year term for the larger portion of the home’s cost. Thomas arranged for Schweizer to take out $178,428 in the FHA loan, which was the most she could borrow given her $1,000 down payment. Otherwise, an FHA loan usually requires a 3.5 percent down payment. That would have been over $6,471. Schweizer didn’t have that kind of money to offer for a down payment.

To make up the difference to get Schweizer to that magical $184,900, Thomas also helped her get a second mortgage through the CHFA. It was a loan for $5,446 at 4.75 percent, fixed rate for 30 years

The FHA loan requires an upfront mortgage insurance, which added up to $3,122. That was rolled into the loan for Schweizer. She also must pay $199 a month for mortgage insurance premiums (MIP), which is required by the FHA for not having 20 percent down. In total, Schweizer pays $1,375 a month for her mortgage.

 

[dmcowen674]

Crazy

The too big to fail banks will be looking for another bailout very soon.

 

[compuwiz1]

Nothing unusual about this at all.
Veterans get 100% financing, as well. My first house cost me $1000 out of pocket, which was my share of closing costs after negotiating with the seller, who paid the rest of my costs.
My second house was partially financed from the equity and profit I gained from the first house. It was a 5000 sf custom build, where we owned the lot outright.

Our next house will also be on a 100% VA loan. Again the closing costs will be negotiated, as well as $5000 cash back from the seller. Again, up front about $1000. If you have the right connections, a no downpayment house happens every day, even with average credit, if you know what to do.

 

[BoomerD]

As long as she can make the mortgage payments, I don't have a problem with this. IMO, it's better to have people buying houses than renting. Neighborhoods benefit from home ownership, local businesses benefit from home ownership, (pride of ownership = home repairs and improvements) and local governments benefit from home ownership by people rather than landlords. (yes, MANY landlords are people too...)

 

[brycejones]

From the thread title I guessed she was paying 20% down in Detroit.

 

[CPA]

Borrowing from a 401K for the downpayment...smh

 

[Londo_Jowo]

Hmmmm I bought my first house in 1988 for $0 down payment and the builder paid all closing cost. I moved in without having to expend any money.

VA loans were designed to allow active duty/retired military service personnel and veterans to purchase a house with no down payment.

 

[realibrad]

Borrowing from a 401K for the downpayment...smh

I dont see a problem with that.

If the expected return through equity is larger than the expected return of the 401k, it would be a very rational thing to do.

 

[CPA]

I dont see a problem with that.

If the expected return through equity is larger than the expected return of the 401k, it would be a very rational thing to do.

I would normally agree, but in most markets that's just not happening right now.

 

[xBiffx]

I would normally agree, but in most markets that's just not happening right now.

Paying interest to yourself for something that you need to purchase anyways (a home) seems like a good play. Better than other forms of debt.

Sure, you may not get the same return, but then you can't lose it quickly when the market tanks either.

 

[fskimospy]

Also, she's paying about $200/month in mortgage insurance, specifically because she didn't have a sufficient down payment. She's paying almost 20% more every month to insurance in order to have no down payment.

I see no problem with this.

 

[fskimospy]

Paying interest to yourself for something that you need to purchase anyways (a home) seems like a good play. Better than other forms of debt.

Sure, you may not get the same return, but then you can't lose it quickly when the market tanks either.

That's another important part of it, she's building equity. Assuming her home's value doesn't tank she's putting away about $275 or so a month. Sure she can't access it easily, but you can't really access a 401(k) easily either.

 

[OutHouse]

my very first house loan 17 years ago was with the CHAFA program. 0 down and a 6% rate on a 30 year fixed. CHAFA is a great program for first time home owners.

 

[DCal430]

That's another important part of it, she's building equity. Assuming her home's value doesn't tank she's putting away about $275 or so a month. Sure she can't access it easily, but you can't really access a 401(k) easily either.

It isn't that simple, at Colorado a conventional loan with out MI and similar premium points is 50 bps higher. So she isn't paying $200 more.

 

[fskimospy]

It isn't that simple, at Colorado a conventional loan with out MI and similar premium points is 50 bps higher. So she isn't paying $200 more.

Interesting! I don't know much about mortgage insurance outside of the basics. Why would someone elect to pay mortgage insurance instead of more interest in this case? From my back of the hand calculations 50 points would still be less than $200/month and would be tax deductible to boot.

Edit: regardless though she would be paying a lot of extra money because of her almost zero down payment.

 

[DCal430]

Interesting! I don't know much about mortgage insurance outside of the basics. Why would someone elect to pay mortgage insurance instead of more interest in this case? From my back of the hand calculations 50 points would still be less than $200/month and would be tax deductible to boot.

Edit: regardless though she would be paying a lot of extra money because of her almost zero down payment.

You only get an FHA if you have low credit and no money.

 

[fskimospy]

You only get an FHA if you have low credit and no money.

Ahhh, I misunderstood what you wrote. Makes sense.

 

[xBiffx]

That's another important part of it, she's building equity. Assuming her home's value doesn't tank she's putting away about $275 or so a month. Sure she can't access it easily, but you can't really access a 401(k) easily either.

I wonder why people don't use 401(k) loans to do more. I mean, paying yourself 4% or so vs. paying someone else that (or even double or triple) seems like a no brainier. The only costs in the loan fee and any earnings the money would have gotten had you left it in place. You'll never know the real costs until the loan is paid off anyways. If that saves you thousands, it sure seems worth it.

Heck it might even be worth it to pay off debt that has less interest than the 401(k) loan in that you are paying the interest to yourself rather than a bank.

 

[z1ggy]

This lady was me, 4 years ago. I took a 0 down payment loan using special assistance program from my state. I paid the house inspection and other applicable fees from money that I borrowed from my 401k, because I didn't have the cash.

I've never been late on a payment, and I keep my house is great shape. I don't see how this is a problem for anybody. Of course McOwned somehow things this is wrong, although I don't see how this particular story implies the banks are too big to fail. Another failpost.

 

[DCal430]

Ahhh, I misunderstood what you wrote. Makes sense.

Yea FHA has a lower coupon, but that doesn't make up for the upfront MIP and lifetime MIP. If you has even 5% down and a decent crediy score, a conventional with conventional MIP is much better.

 

[TheSlamma]

I liked this part

She built her former home in 2003, but lost it because she didn't manage her finances properly.

“I got a little greedy. I was only working part-time or three-fourths time, but was spending like I was working full-time. I was living off my credit cards,” she said. “If had to do it over, I would still be in that house. But it was all my fault. I have no one to blame but myself. I went running to bankruptcy, and I walked away from my house.”

sounds like she learned a good lesson, I hope it all works out for her now. Get the stars out of your eyes and don't fall for the banks bait. Buy what you are COMFORTABLE with.

 

[bshole]

Nothing unusual about this at all.
Veterans get 100% financing, as well. My first house cost me $1000 out of pocket, which was my share of closing costs after negotiating with the seller, who paid the rest of my costs.
My second house was partially financed from the equity and profit I gained from the first house. It was a 5000 sf custom build, where we owned the lot outright.

Our next house will also be on a 100% VA loan. Again the closing costs will be negotiated, as well as $5000 cash back from the seller. Again, up front about $1000. If you have the right connections, a no downpayment house happens every day, even with average credit, if you know what to do.

Why the fuck do you need a 5000 sq ft house? That seems ridiculous. I have two kids and find my 1850 sq ft home plenty big.

 

[Genx87]

Eh the two people I know who used the VA program didnt pan out. They overbought a house because they could. Since it didnt have the same income to debt ratio requirements as a conventional loan they were pushed through. Result for one couple was bankruptcy and living with her parents. The other has been floundering for 2 years living paycheck to paycheck. I think the idea is noble. But we cant set people up for failure. I was completely shocked that both of these vets were extended a loan given their credit history and income levels.

As for this program? Again I would hate for us to set people up for failure under the guise of home ownership.

 

[cabri]

Why the fuck do you need a 5000 sq ft house? That seems ridiculous. I have two kids and find my 1850 sq ft home plenty big.

One may not need a 5K ft house.

One may want and/or utilize such a place.

Each to their own. Who are you to judge?

 

[SlowSpyder]

Borrowing from a 401K for the downpayment...smh

That's what I did.