Are People Nuts?

[WhiskeyGirl]

An acquaintance was recently proudly telling myself and a group how his daughter and boyfriend were buying a home together. Now for the details:


She's about 19 and has a child from a man that has not claimed it or supported it.
She just finished up her GED and just got into an entry level type full time job.
He's 20-21 and has an entry level type job. (I'd guess $50K annual income between the two max)
They're not getting married and have no plans to do so.
It's a $140,000 first house.
Getting a joint loan and needed it in both their names because neither has enough income solo and don't have a large enough down payment.
Doing a 30 year loan to keep payments low as possible.
From seeing what they drive, guessing both have car payments.
The small down payment on home will use any savings they have



A track record of irresponsibility, unable to commit to each other, minimal income and a dumb loan and those parents were talking how proud they were of these two for getting their first home and how it will be so good for them? This wreaks with extremely high probability of a break up, foreclosure and some ruined credit. I don't get it? I would stomp, scream, and yell to steer my kids away from something like this.

Sadly, this seems to be the norm.

I am sorry, but I don't get where this is so dumb.

When I was 20, I did something very similar. I had already been living on my own since 17. My then bf and I bought a house for $120k. We sold it 18 months later for $189k. We bought a much nicer house for $210k. We got married, and the relationship failed. He bought me out of the house and I had a large chunk of cash to put down on another house.

So 16 years after the first house, I currently own one rental property and one large single family home with a good amount of home equity.

[disneysteve]

I am sorry, but I don't get where this is so dumb.

1. You should never take a joint loan with someone you aren't married to.
2. You should put down 20% when buying a home.
3. You should have a 6-month emergency fund when buying a home (actually you should always have a 6-month EF whether you own a home or not).

You were extremely lucky. Your relationship lasted until after you were married, which gave you legal protection in the break up. Had you split prior to marriage, the story could have ended much differently. You were also very lucky because your house appreciated significantly in a very short time. That is certainly not the norm today. If you had to sell a house after only 18 months, odds are good that you would lose money after all fees were accounted for.

This is a disaster waiting to happen.

[WhiskeyGirl]

1. You should never take a joint loan with someone you aren't married to.
2. You should put down 20% when buying a home.
3. You should have a 6-month emergency fund when buying a home (actually you should always have a 6-month EF whether you own a home or not).

You were extremely lucky. Your relationship lasted until after you were married, which gave you legal protection in the break up. Had you split prior to marriage, the story could have ended much differently. You were also very lucky because your house appreciated significantly in a very short time. That is certainly not the norm today. If you had to sell a house after only 18 months, odds are good that you would lose money after all fees were accounted for.

This is a disaster waiting to happen.

We can choose to disagree. My ex and I resolved the house situation prior to even filing for divorce and years before it was final. I have ended relationships as married and just cohabitanting. It is far easier and cheaper to end those without marriage involved.

Financing the house prior to having a downpayment Is what gave us the down payments for the subsequent homes.

I do agree that everyone should have an emergency fund and I do have one.

[disneysteve]

It is far easier and cheaper to end those without marriage involved.

Only if you both agree and act civilly, which doesn't tend to be the case when people break up.

Financing the house prior to having a downpayment Is what gave us the down payments for the subsequent homes.

That only worked because of the rapid appreciation. Understand that you experienced a tremendous anomaly. Houses don't usually appreciate like that. How would it have worked out if after 18 months the house was worth the same, or even less, than you had paid? Even if it went up by 1 or 2%, after all of the expenses, you would have lost money.

I don't think you'll find much support here for buying a home with little to no down payment.

[bennkar]

I agree their plan has a too high for me probability of failure, but I don't see it is a slam dunk. Its becoming more common for younger people to live together without marrying, so I don't see that as a deal breaker. They should have something in writing for how the house will be dealt with should the relationship break up. Their joint income sounds reasonable versus the size of the loan. And waiting until you can pull together the funds for the standard 20% down payment could take many, many years depending on how much they spend now on housing, so this could help them turn the corner in making their money work for them instead of someone else.

I bought my house with 3% down, refinanced out of PMI 2 years later, and paid it off within 12 years (all the while going through a divorce and losing a job). Do these kids seem like the "determined to make it work" type? I was, and if I waited to put together 20%, I might still be renting today instead of having a paid off home (no joke, that choice was that important to my life today).

That all said I might mention my concerns but wouldn't put them down for this decision. And if I was more involved with them, I could mention I can give them advice on how to make this work if they would like to hear ideas.

[FLA]

Each earning 25k does not sound reasonable to me to justify buying home with no downpayment, especially if you are 20 with one child but no child support. Anyone not married who does this should see a lawyer before doing so each party is protected in the event of a break up. Not doing this part seems like incredibly poor judgment. It's bad enough if it happens due to divorce and there is a gaggle of kids. At least there are laws in place for divorcing couples and family court judges. Flying alone into this so young with a not-great income just sounds like it will be a disaster more likely than not. Where's the fire, why did they need a house so soon? Just because you can, does not mean you should.

Maybe it was good it was a joint loan, if she wasn't on it and they separated, isn't it hard to claim her share of the home?

Whiskeygirl, I agree with what Steve said, you are one of the very fortunate ones. It is rare for homes to appreciate like that and rare to end a relationship involving a large asset with both parties happy without legal assistance.

maybe I am naive, but is it ever better for your financial picture to buy a home with little downpayment and so much PMI? Why isn't it better to wait until you can put the money (or a good chunk of it down)? Isn't PMI like throwing dollar bills out the window? I don't get it

[disneysteve]

Just because you can, does not mean you should.

Great statement. This is what so many people simply don't grasp. Just because you have the money for the monthly payments doesn't make something a wise purchase. That's why millions of people are in credit card debt. That's why millions of people got destroyed in the housing crash.