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

[Fayd]

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.

Piggybacking loans is extremely common. not sure what the point of this thread is.

 

[dmcowen674]

Perhaps we should compare property taxes to see who's better.

My bill just came yesterday and it was $5,800.

Top that!

That's nothing.

Just about all homes are well over $10,000 on Long Island.

 

[Dannar26]

It's an odd thing. Renting is so expensive here...I 'd rather pay even slightly more and build equity. But here again, property taxes in PA are crazy.

 

[Londo_Jowo]

Well I have a full basement so technically I am almost as good as you (I have a total of 1860 + 900 = 2760 sq ft). Perhaps we should compare property taxes to see who's better. My bill just came yesterday and it was $5,800. Top that!

I have a 2400 sq ft home on a 1/2 acre lot and I paid $2,800 this year. Gotta love the Texas Homestead Exemption.

 

[fskimospy]

No, but a quick search for apartment listings in her area shows you can get a 1 bedroom for around $700-$1000 a month.

Anywhere from the mid to upper end of that range and this is probably a smart financial decision. Between equity she is building and the mortgage interest deduction you're probably talking close to $300 a month in equity and $200 a month in mortgage interest deduction.

As others mentioned you are losing liquidity, which is a problem, but overall money wise it could very well make sense.

 

[Exophase]

Anywhere from the mid to upper end of that range and this is probably a smart financial decision. Between equity she is building and the mortgage interest deduction you're probably talking close to $300 a month in equity and $200 a month in mortgage interest deduction.

As others mentioned you are losing liquidity, which is a problem, but overall money wise it could very well make sense.

I didn't realize you got so much of a tax break for mortgage interest. That'll go down in time as she's paying down more principle right?

There are other costs to home ownership, though. I'm a little biased because where I live property taxes are exorbitant (I pay like 3.5% the value of my house a year, for reasons that aren't that clear to me) Their property taxes look like they're under 1%, so that's not as much of an issue. And there's home owner's insurance, those are the big two people point out when comparing with an apartment.

But then there's others.. a lot of the apartments include at least some utilities (if not heating/electric, at least water and sewer), you don't have to pay maintenance costs (including like when the city made me fix the sidewalk in front of my house), and you don't have to pay for things like mowing the lawn and shoveling the driveway.

It sounds like she basically lives paycheck to paycheck since she had no real savings now, and it'll take a long time for her 401k to accumulate to anything significant again. If she's hit with a big expense like having to replace her roof, which will probably happen at some point during the mortgage period, she could be in for a really difficult time. Or if she loses her job and unemployment is no longer enough to cover the monthly costs, even if she does end up getting a hefty refund check after her taxes are paid.

So I'd be nervous, but more because of her circumstances and habits than because it works out as a worse deal if managed properly.

 

[fskimospy]

I didn't realize you got so much of a tax break for mortgage interest. That'll go down in time as she's paying down more principle right?

There are other costs to home ownership, though. I'm a little biased because where I live property taxes are exorbitant (I pay like 3.5% the value of my house a year, for reasons that aren't that clear to me) Their property taxes look like they're under 1%, so that's not as much of an issue. And there's home owner's insurance, those are the big two people point out when comparing with an apartment.

But then there's others.. a lot of the apartments include at least some utilities (if not heating/electric, at least water and sewer), you don't have to pay maintenance costs (including like when the city made me fix the sidewalk in front of my house), and you don't have to pay for things like mowing the lawn and shoveling the driveway.

It sounds like she basically lives paycheck to paycheck since she had no real savings now, and it'll take a long time for her 401k to accumulate to anything significant again. If she's hit with a big expense like having to replace her roof, which will probably happen at some point during the mortgage period, she could be in for a really difficult time. Or if she loses her job and unemployment is no longer enough to cover the monthly costs, even if she does end up getting a hefty refund check after her taxes are paid.

So I'd be nervous, but more because of her circumstances and habits than because it works out as a worse deal if managed properly.

I mean I can't possibly speak to her specific circumstances. It's very possible my evaluation is totally wrong.

In fact it sounds like she is low income so probably unable to take full advantage of these deductions. You're also right that owning means replacing the fridge/roof yourself as opposed to just hitting up the landlord.

Who knows. There is a pretty good area where this is a financially good decision though.