Wondering about wild grapes

Tuesday, January 25, 2011

Wondering why no down payment.

OK, I just don’t understand people. How can they be so dumb about finances, especially when it comes to purchasing a home?

Many years ago, I watched a builder/developer start building homes on a piece of land near where I worked. He would complete a couple and put them up for sell. His big gimmick was, “no down payment and no closing costs”, just move right in. That sounded like a dream come true to many folks and this developer sold his homes as fast as he could build them and he kept building them.

Then the problems started for a few. Some people were transferred to other sites and some took new jobs and had to move. They put their “new” homes up for sell, but that is when they realized that they were in trouble. Their “new” home was used and they owed more on their mortgage loan than the house was worth new. So why would anyone want to buy a used home for more money than a brand new one just a few doors down the street that didn’t need a down payment like a bank would ask for and also didn’t ask for any closing costs?

These poor home owners, even if they had been paying on their loan for a couple of years, had not even paid off their closing costs. Even though these loans where long term, they were similar to short rate discount loans where the first payments are almost 100 percent interest.

How could that be? How could they owe more than what the house was worth, even though the original selling price was set at a fair market value? It wasn’t because of decline in the housing market. It was because of the no closing costs and no down payment. There were closing costs, and lots of them. They were not just forgotten about and erased, but they were added on to the loan.

I was told and I do believe that when purchasing a home, that you should put at least 20 percent down and pay all closing costs and take the shortest duration loan whose payments you can afford. And when you are figuring what you can afford, add in ten percent of the homes value per year for upkeep and maintenance. If you can’t afford this, then look at less expensive property or rent or lease.

This probably happened elsewhere and through out the years. If so, it makes it a lot easier to understand why so many people lost their homes when the economy got bad.

A lot of people have always tried to live above their means to show others how good they are doing. I prefer to live below my means. I sleep much better that way.


  1. Wise words, and a lesson I wish I knew when I bought my first home 6 years ago, at 25. Of course, we didn't buy either fancy or new ( 50 year old 850 sq ft home), but we didn't put anything down either. More because of the housing market crash we're now some 25% upside down. We're firmly stuck, and thankfully for now we can afford to be. But it was scary when I got laid off some 3 years ago, and it took me 8 months to find a new job.

  2. It's like buying a car or anything else long-term. They don't even want to talk selling price, it's "How much can you afford per month". They don't want you to think about how much it's REALLY costing you.

  3. Wellllllllllllllll Dick, this only shows to go ya!

    Some people live beyond their means and others just live mean!

  4. I never liked paying interest either. As for car dealers, if their lips are moving they're lying .

    I have always tried to pay off early any loans. They don't really like it, but, they have to take your money. As for the people that were stupid enough to fall for the "just make the monthly payments scams,, sorry, you signed the paper , either pay it or default and walk away.

    I have walked away from a car dealer( thief) When he won't tell me the cash price.

  5. Grant, glad to hear that you were able to hold on to it.

    Gypsy, Yep, back 1999 I bought a Ford Pick-up and put up a beg down payment and asked for a 12 month loan. They said that was impossible, so I started to negate the deal and walk out. They said hold on while they checked and then said the best they could do was a 2 year loan. I agreed.

    Ernest, Are you saying that if you don't live beyound your means you are mean? Hey, I ain't mean.

    Ben, I like paying cash, too, when I can. Car dealers make a lot of their money on the loans. That is why they don't like cash paying customers.

  6. Dizzy, I agree with you, people don't need to live beyond their means. Especially in this economy. Now if everyone else would live that way there wouldn't be as many people in financial trouble. Blessings jane

  7. No, I was just saying that I think the guy who was not asking for a down payment and then stiffing his customers was mean!

  8. Jane, glad you agree, and yes, we need everyone to live within their means.

    Ernest, You sure are right, he probably thought that he was doing them a favor and therefore would sell more homes. But you may be right, he probably was mean and just wanted to make big money. By the way, I was just trying to be funny in that remark and it came out wrong.