[mcmama]

Recently I worked with a couple who wanted to buy a home. They came in with a prequalification for a huge amount from a no name lender. They did not have the understanding of just how much a home that cost what they thought they could afford meant in monthly terms.
They wanted no money down, and a seller's concession. This means that they had no money for closing costs. I asked if they had the customary $1000 "good faith" money that could be held in escrow against the closing. No. They had nothing.
I had a competent mortgage broker whom I trust do a thorough pre approval. Not only did he look at their income, he looked at their job history and credit (which barely was eligible for 100% financing). They were astounded to hear what the true monthly costs were, including taxes and insurance, and not including home maintenance.
We targeted several homes that were quite a bit less than what they thought they could afford. There was very little to choose from. Some sellers did nt mind the concession, but they wanted to see money in escrow.
We weren't successful in this very competitive market. We may have some success in the future if the market softens. What surprised me was that the people did not seem to understand that in a seller's market, no money down and a seller's concession with absolutely nothing in reserve is not a great position to be negotiating from. They just kept repeating "we know we can get it for no money down." It was as though they were parrotting a bad infomercial.
Are people buying their primary homes with no money down very much in other areas of the country, or just in hot markets?
I tried to see myself in their position - and I really had difficulty imagining myself going for this. If you do not even have the $1000 to put up front, if you have no money for closing costs, if you have no money at all - how will you afford to move? How can you afford a house in the first place? Can you really meet all the surprises that come your way in home ownership?
In short, WHAT ARE PEOPLE LIKE THIS THINKING?????
Can some one explain this....please???? Any other realtors encountering this?

[cocotbo]

They are thinking that they can purchase a home for less per month than they would pay rent and they are believing all of the "no money down" hype they hear on TV.

It just isn't prudent for a military family to buy a home when they don't know how long they'll be staying in one place, so we've never purchased a home. We are hoping to purchase one in the next several years though and this information was VERY helpful. Thank you!

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[markbarnes19]

You're right about someone in the military. You are wrong, however, about someone being able to save money buying versus renting. With interest rates as low as they are, the monthly payment on a 100,000 home can be less than $500, depending on the type of loan you get. There aren't too many decent apartments for this amount.

[mcmama]

This is true, buying often beats renting. To make that work, you have to be a buyer, not someone who is just scraping by in an area where the taxes are killing us all and contributing to falling prices. And, entry level has to be at what you can afford. Entry level here starts at around 350,000, and it often needs significant work. Condos are not much cheaper. Coops are cheaper, but people like the ones I mentioned have to meet income requirements - and have something to put down.

People like this often do not get low interest rates - well, they are low compared to what they were years ago, but they are not the lowest rates. If you do not even have the closing in reserve, you really need to reconsider purchasing a house that is your primary home in a market like this. Rent is negotiable. A new roof, a new furnace, a new water heater, updating the electric, replacing the pipes - those are not so negotiable, and often you cannot put those off until you have money. And you will never survive the inevitable tax increase. My taxes have risen over 25% in six years. I live in a small house which is the very start of the market. No garage, two bedrooms, 50x100 lot. My new assessment is $6200. In the "hot" areas of town, the same house is taxed at close to 8,000. The assessment is very subjective, and very subject to the usual corruption. You can appeal it, but meantime, you have to pay.

Sorry Mark, but there are some people in some places for whom this hype about buying a home is harmful. I see people now selling, asking too much because of what they need to get out of their house - not as much as they put into it. We are going to see more foreclosures in my part of the market within the coming year - people will not be able to withstand owning their homes and whatever life throws at them. It happened in the Poconos, it will happen here.

[cocotbo]

Originally Posted by markbarnes19

You are wrong, however, about someone being able to save money buying versus renting.

I'm sorry, I must not have been clear there. I was not stating that as a fact, I was stating a common misconception that is held by many people who are inexperienced and uneducated when it comes to real estate.