Is $0 down 100% Financing USDA approved community the kiss of death for a neighborhood? (short sale, health insurance)

[austin-steve]

Originally Posted by hbopp3671

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!

Obviously there are a lot of opinions about this. I don't buy houses in zero down neighborhoods, and I keep my investors away from them also. But there are a lot of variables to consider.

My main issue is the fact that the definition of "owning" something, to me, means you have an asset with equity. Being upside down on the mortgage in a starter home neighborhood isn't "ownership", as I think of it.

Since it costs about 10% of the sales price to sell a home, these zero down buyers have to see 10% appreciation before they are break even. Most of the neighborhoods offering zero down will not appreciate 10% the first few years, so you end up with a bunch of neighbors walking the tightrope with no safety net. That why we have all the short sales and foreclosures in those type of neighborhoods. Many were way oversold to investors and are still suffering from that hangover as well.

My advice - buy an older home in a built-out established area as close in as you can afford. Stick the the average/median value for the neighborhood, or lower. Stick to the average/median sqft size, don't buy too big. Neighborhoods that are 10-20 years old are generally into the second generation of owners and what you see is what you get. Not so in the newer subdivisions.

Trust your gut instinct and don't get sucked into the "more sqft for the money" trap, or the allure of new.

Steve

[intmd8r]

Originally Posted by riaelise

Time and Space - while I see where you are getting at, I must disagree about the age thing. I purchased my first home in 97 when I was 21 years old. This was back in the "good ol' days" (as some of y'all would claim) when you had to put money down to purchased a home. I worked. VERY hard I might add. I worked a lot of overtime so that I could plunk down the 13% because even then I saw that renting was a wasted venture and I'd rather own my home. And without shame I qualified for a first time homeowner assistance program. It wasn't a mega house. It was a 1000 sq ft condo. But it was mine, and no one could take that away from me. I had pride of ownership, and I owned that little microcism of real estate until I got married and sold it.

Not all young people expect things to 'come easy' or get things easy. We need to stop judging who is eligible for homeownership and who is not. Foreclosures are hitting every one - good credit, bad credit. Established neighborhood, new home neighborhood. It's easy to sling brickbats at certain segments of the population for this mess, but the whole implosion is more complex than that. Also, people live in these 'pop up homes' as you call it. They work and try to pay their mortgages, just like anyone else.

Excellent post and great points. I bought my first house at 23 and I put down 10%. It was a small, 1,120 sq ft starter home and it was mine. I sold it when I met my husband and we built a 2nd home. We sold that and moved into our 3rd home, which was nowhere near a starter home and nowhere near a 100% neighborhood. We put down a considerable chunk of change.

Fast forward 3 years. We have our son. He's two months old. I'm still on maternity leave. We BOTH lose our jobs. The economy in Phoenix is going down the pooper. We've lost over HALF the value of our gorgeous home and we have to short sell it.

We had PERFECT credit and hadn't paid a bill late in 10 years. It's now trashed and we lost not only our down payment but all the payments we made on the house while living there for 3 years, because we had to walk away with nothing.

Short sales and foreclosures are indeed not just for people who bought with zero down in starter neighborhoods, at least not in Phoenix.

[Dragonpriest]

Originally Posted by intmd8r

Isn't this what's been getting so many people in trouble when they lose their jobs or their homes lose a ton of value? They haven't paid down their house at all and have no equity, because instead of a down payment, they bought a shiny new sports car?

I'm not saying this is you, but the statement in general is what I'm addressing. Also, I'm coming from Phoenix, where this was WAY more of a problem than in Austin. I saw it a lot.

I agree with you there intmd8r, fortunately the car is paid for. Other than utilities, all I have is my mortgage and under $200 car payment on my wife's car.

Originally Posted by intmd8r

Short sales and foreclosures are indeed not just for people who bought with zero down in starter neighborhoods, at least not in Phoenix.

Unfortunately this is very true, even Austin got hit pretty bad, but luckly not near as bad as most places.

[ROY DUBOSE]

i haven't seen many (if any) new developments break ground in the last 2 years -- true some are "building out" what had been started but no new ones --

it IS harder to qualify now -- lenders DO require the same fico for a usda loan as an fha -- another benefit to a usda loan is that it doesn't require a monthly mortgage insurance payment like an fha -- it's paid for as part of the buyer's closing cost -- usda loans are a little known lending opportunity that helps people and the local economy in a reasonably safe/sane way -- it ain't a bad thing and the folks that use 'em ain't bad folks --

[mark311]

I think people are sort of arguing two somewhat different points here.

Would I buy into a neighborhood where the builder is providing 100% financing to almost anyone that applies with the current state of the economy? No.

Do I think that all people with great credit that are able to currently qualify for 100% fixed rate financing through a normal lender are bringing the economy down? No.

I think there's quite a difference between the two statements above and people are arguing two different points.

[Runemaster]

Originally Posted by ROY DUBOSE

i haven't seen many (if any) new developments break ground in the last 2 years -- true some are "building out" what had been started but no new ones --
--

In Phoenix, I watched several new developments begin well after the market started to tumble. While a few builders backed out, most just went on, business as usual. Ryland broke ground on a massive one (probably 200 homes), in a not-so-sought-after area in late 2007. Why on earth anyone thought that was a good idea is anyone's guess. I drove past it several times a week and they were still putting houses up in there the last time I went past in late '08. Don't think anyone lived in the development yet either.

[intmd8r]

Originally Posted by Dragonpriest

I agree with you there intmd8r, fortunately the car is paid for. Other than utilities, all I have is my mortgage and under $200 car payment on my wife's car.

That's always nice!

When we lost our jobs, all we had was our mortgage and two very small car payments (both under $200). I guess the silver lining is that now we only have the two car payments?

[Time and Space]

Payments I have..
1.cell phone $49.00
2. Storage $45.00
3. auto insurance $77.00
4. Internet $79-125
5. food $50-$150
Those are my basic expenses...

With just basic expenses, I still have to come up with about a minimum of $450.00 to get by...
So even when your poor, broke, and hardly own anything...just to get by you gotta generate $450.00...now if you add morgage or apartment payments to that, health insurance, car payments, kids, pets, my gosh...I can see why many are loosing their homes...(Oh I forgot credit cards and other loans) fines and tickets...license renewals, medical bills, vet bills,

I think the average 2 couple family has to generate at least $2000 a month to stay ahead...
A single person...maybe $1500....

Believe it or not...I think two can make it easier than one...that would make for an intersting thread....

[hound 109]

Excellent post by Austin Steve.


& I agree with Mark who says that:

Would I buy into a neighborhood where the builder is providing 100% financing to almost anyone that applies with the current state of the economy? No.

Do I think that all people with great credit that are able to currently qualify for 100% fixed rate financing through a normal lender are bringing the economy down? No.

I think there's quite a difference between the two statements above and people are arguing two different points

But i've got a question on the following:

Originally Posted by ROY DUBOSE

i haven't seen many (if any) new developments break ground in the last 2 years -- true some are "building out" what had been started but no new ones --

it IS harder to qualify now -- lenders DO require the same fico for a usda loan as an fha -- another benefit to a usda loan is that it doesn't require a monthly mortgage insurance payment like an fha -- it's paid for as part of the buyer's closing cost -- usda loans are a little known lending opportunity that helps people and the local economy in a reasonably safe/sane way -- it ain't a bad thing and the folks that use 'em ain't bad folks --

Am i understanding this correctly.....Is this a prepaid expense (at closing) that is tacked onto the note (along with real estate commisions, builder profit, builder upgrades, closing costs, etc.)?

(Which just adds more "air" to the -0- down home,,,,which already has plenty of fluffy air....making the difference between a "new home sale price" & a "foreclosure sale price" that much greater.)


The only way i'd buy in a neighborhood like that would be if i considered the mortgage payment to be "rent".....it'll take over a decade or more to get above water in those neighborhoods.

[intmd8r]

Yeah, when we moved up here and started budgeting what we would need, we were stunned at how fast the dollars started adding up, even with rent 1/2 of what we were paying for our mortgage. Of course, we now have a 1-yr old and that makes quite a bit difference!

I feel like I'm living closer to the way I did in college than when we were both gainfully employed with no children, yet it costs SO MUCH MORE than I made back then. Heh. Kids, health insurance, two cars to pay for and insure, higher rent (by far) for the space we now need with a child and home offices for us both (hubby works from home and I did too when we moved up here). It adds up quick.