Is $0 down 100% Financing USDA approved community the kiss of death for a neighborhood? (Georgetown: real estate, foreclosure) - Austin - Texas (TX) - City-Data Forum

hbopp3671 · 03-05-2010, 07:52 PM

We were thinking of buying a house in a neighborhood in Buda that is now offering $0 down and 100% financing because it is a USDA approved community. Is this the kiss of death for a neighborhood? From my understanding this is not a good thing. Anyone have some helpful information on this topic? Thanks!

atxcio · 03-05-2010, 08:15 PM

I would take that as a pretty bad sign for the neighborhood.

I mean think about it -- what kind of people don't even have the discipline to save a measly 3% down payment (for FHA) on a $120K-150K house? Answer: probably people who shouldn't be buying a house. You'll be inviting a bunch of people who don't have the finances or discipline to properly maintain their home. Ultimately, they can't afford the payment either. And when they finally figure that out, they are upside down on their 100% loan (since the new home depreciates). And guess what? They don't have the money to bring to the closing table to get out of the house. Just like they didn't have the deposit. So it goes to foreclosure.

Kiss of death for the whole neighborhood? I don't know. But I would be very cautious.

hbopp3671 · 03-06-2010, 06:14 AM

Yep, that is exactly what we were afraid of. Looks like we won't be moving to Buda! Georgetown, here we come! I appreciate your info.

TexasHorseLady · 03-06-2010, 11:56 AM

It really depends on the neighborhood. After all, that financing is available because that property was rural as of the last census (and those qualifications will be changing as of the new one). Parts of Sun City, for example, qualify, because those parts weren't developed in 2000 and were used for cattle grazing. Now, they're nice homes, purchased by retirees who absolutely can afford the down payment but might want to keep it in their own investment portfolios.

The fact that a neighborhood (or an entire community - Taylor, for example, pretty much qualifies, and that's homes from older tear downs to more expensive, nice homes in established neighborhoods) qualifies for USDA 100% financing doesn't mean that all of the houses in that neighborhood will be bought with that loan, either - just that it's possible. There are requirements beyond address, of course - the borrower has to qualify, as well, and there are criteria for that.

So, don't by any means write off an entire neighborhood or town just on the basis that someone CAN get that kind of loan. Look at the whole picture.

tfresca · 03-06-2010, 01:04 PM

Yeah those loans were available for rural areas not necessarily bad neighborhoods. Also I take issue with people always ragging on others who didn't put a down payment. Just because you didn't put down a down payment doesn't mean you can't afford the house. Sometimes opportunities come up and you have to take them. The foreclosure rate was the same for people who had sub-prime loans as it was for people who had regular loans. Turns out losing your job is the great equalizer no matter how much you make.

texastea · 03-08-2010, 08:04 AM

When we built 15 years ago or so, anything north of 1431 in Cedar Park qualified. One neighborhood that really benefited was Carriage Hills--Milburn (currently DR Horton) and Centex were advertising 0 down. I think that area has done ok.

ROY DUBOSE · 03-08-2010, 10:14 AM

Quote:

Originally Posted by atxcio

I would take that as a pretty bad sign for the neighborhood.

I mean think about it -- what kind of people don't even have the discipline to save a measly 3% down payment (for FHA) on a $120K-150K house? Answer: probably people who shouldn't be buying a house. You'll be inviting a bunch of people who don't have the finances or discipline to properly maintain their home. Ultimately, they can't afford the payment either. And when they finally figure that out, they are upside down on their 100% loan (since the new home depreciates). And guess what? They don't have the money to bring to the closing table to get out of the house. Just like they didn't have the deposit. So it goes to foreclosure.

Kiss of death for the whole neighborhood? I don't know. But I would be very cautious.

from what i know, a usda loan has the same fico requirements as an fha loan and not the 540's from the past -- tax rates have been established and there's no "after the fact" tax assesment to deal with (which jacked up many payments hundreds of dollars above what folks were quoted on a gfe)

many of home builders used the program to rake in huge profits it still takes $1500 to "play" these days (earnest money, option money, and inspection costs) and that's a credible investment for work-a-day folks that desperately want to get out from under throwing their money away on rent and have the security of owning a home

am i wrong in taking the comments as being judgemental?

oldtoiletsmkgdflrpots · 03-08-2010, 10:30 AM

Quote:

Originally Posted by ROY DUBOSE

am i wrong in taking the comments as being judgemental?

Is that a trick question?

atxcio · 03-08-2010, 10:43 AM

First of all, my problem is really just with the new-home communities. I don't doubt there are good rural (or previously rural) neighborhoods that qualify for USDA, esp some of the examples mentioned that are already established communities.. a few resale homes using the USDA loan is no big deal in those areas. To me, that's an apples-to-oranges comparison. It's when the builder of a new community is pushing the USDA loan as a means to unload inventory (either built or to-be-built) -- that's when I'd be seeing red flags.

Quote:

Originally Posted by ROY DUBOSE

from what i know, a usda loan has the same fico requirements as an fha loan and not the 540's from the past -- tax rates have been established and there's no "after the fact" tax assesment to deal with (which jacked up many payments hundreds of dollars above what folks were quoted on a gfe)

Well, it's good if they are using tax rates rather than actual assessments (which will adjust) in these new communities. Are you sure that's the case? I mean, these loans are 100% backed by the government, right? I'm not sure that we can count on the lenders/builders/agents to be as thorough about things like that when they have nothing on the line. It's good if they upped the credit score requirement.

Quote:

Originally Posted by ROY DUBOSE

many of home builders used the program to rake in huge profits it still takes $1500 to "play" these days (earnest money, option money, and inspection costs) and that's a credible investment for work-a-day folks that desperately want to get out from under throwing their money away on rent and have the security of owning a home

I don't agree that's a credible investment for a house in the $150K range. $1500 is more like a deposit on a lease. You should have more than that if you are buying a house in that price range. Used to be you had to have the 3-5% down payment, PLUS 2-3 months worth of payments in the bank.

And the builders aren't making much from those piddly $1500 prepays. They are much more interested in that huge check from the bank when the house closes. That's all they care about -- in fact, they have more riding on these deals than the real estate agents with their commissions. You give them another tool to attract buyers who probably shouldn't be qualifying for a loan, and I think you are asking for trouble. There is zero risk for the builder in selling a home to someone who shouldn't be qualifying. Apparently there is not much risk for the bank, too. So who is at risk? The other homeowners and their property values.

Quote:

am i wrong in taking the comments as being judgemental?

Judgemental as to the financial sense of people considering a 100% loan on a brand new house? Yes, I suppose they are.

Dragonpriest · 03-08-2010, 04:11 PM

Atxcio, you got problems. I used a USDA home loan to buy my house, I pay my bills, I maintain my house. I think your just bitter because you didn't get the same opportunity that those of us that got a chance to take advantage of the USDA home loans did get. Times change, why save the money for the down payment when i can put that towards the nice sports car sitting in the garage. =)