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Are We Headed For Another Real Estate Mess?

By Nicole Weidauer

Real Estate Agent with Keller Williams Greater Seattle

January 29, 2009 03:16 AM

I sure hope we aren't but the reason I bring it up is because of some recent ads I've been seeing. The ads are for first time home buyer loan programs, the same type that helped get us into the same mess we are trying to get out of.

Last November in a Dave Says column, Mr. Ramsey expressed his frustration with low to no money down home loan programs for first time buyers. "You know, when I hear the advice you were given, I just want to smack somebody. Haven't the mortgage lenders learned ANYTHING from the last several months? Nothing down, interest-only and sub-prime loans are a big part of the reason for the financial debacle in this country. A house is not a blessing when you're broke, and a bargain is only a bargain when you're ready to buy!"

First time home buyer loans allow buyers to get into a house more easily. However, just because you're a first time home buyer doesn't mean you should use a first time home buyer loan.

What is a First Time Home Buyer Loan?

A person's first home purchase is a big deal. It takes time, energy, and money. To help with the money hurdle, some people use first time home buyer loans. These programs vary depending on where they're offered, but the general idea is this: first time home buyer loans give financial assistance to qualified borrowers. They may do this in the following ways:

Allow for a very low (or no) down payment
Subsidize interest costs (they pay all or part of it)
Offer grants
Forgive loans
Limit fees that lenders are allowed to charge
Defer payments

First Time Home Buyer Loan Pitfalls

For some first time home buyers, these programs seem perfect. They open the door to home ownership where a family would not have been able to buy a home before. The only problem is that if one is not financially ready to buy a home (make a down payment, pay closing costs, have reserves in a rainy day fund, etc...) then it might be best to wait until you are.

My job as a real estate consultant is to advise and educate my buyers and sellers about the real estate process, market conditions, loan programs and options, etc... Of course I want to help many people with their home buying needs, BUT I also want to help them make the best choice for their family. In the wise words of Dave Ramsey, A house is not a blessing when you're broke, and a bargain is only a bargain when you're ready to buy!

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Simon Mills

Mills Realty - Toluca Lake, CA

It amazes me that the FHA has a 3% down program. I agree with you that this is asking for trouble. In a perfect world everyone would own a home, but the truth of the matter is we need renters to balance the market. We need to force people to save 20% for a downpayment and then be able to purchase. This will help create a much more stable marketplace.

Jan 29, 2009 11:51 AM

Denise Gray

Realty World Alliance - Wichita, KS

Realtor SRES, Wichita Kansas Homes

I disagree. Maybe I don't get out enough. The homes in the area I spend most of my time have had some foreclosures. The cause has ranged from divorce couldn't stop fighting long enough to settle, dropped dead of a heart attack at 34, catastrophic illness of a child, had to help a sick parent so they lost their job, ect. It has come down to unusual circumstances.

Jan 29, 2009 03:20 PM

Leslie Stewart

Oregon Licensed Broker with Berkshire Hathaway HomeServices Real Estate Professionals - Stayton, OR

Realtor, ABR, CRS, Oregon Licensed Broker

You gotta have some skin in the game! It takes discipline to save for a down payment and buyers need to learn they can't get something for nothing.

Jan 30, 2009 03:30 PM

Paul McFadden

Responsive Pest Control - Seattle, WA

Pest Control, Seattle, WA.

Nicole: I don't think so. I expect things to start picking up this year and it should be good times again either next year or the year after. Will we learn from the last time? Probably not. We seem to go from boom to bust in our economy so make sure you save for a rainy day! Take care.

Jan 31, 2009 02:48 AM

Stanton Homes

Stanton Homes - New Home Builder - Raleigh, NC

Design/Build Custom Home Builder in North Carolina

A 3% down payment and 3% in closing costs can be roughly 6 months in income. It does take discipline to put aside six months income, while paying rent, car payments and all the other normal monthly bills. Good credit is a huge factor too - is the person doing well with all the responsibilities they currently have? Or are they struggling to make it without a house payment? I think there's a big difference between no closing costs, no money down and a significant investment.

Feb 06, 2009 05:06 AM

J. Philip Faranda

Howard Hanna Rand Realty - Yorktown Heights, NY

Associate Broker / Office Manager

I am coming in late on this, but if anyone is looking for a place to point fingers, FHA is not the right target. Since the 1930's FHA has been a backbone of the first-time home buying market and the default rate has been consistently low. That 3% down is significant enough to make buyers honest and low enough to make ownership attainable. The rate is fixed, the documentation level is high, and the appraisals are tough. It works. The proof is 70 + years of success.

Sub Prime is a different matter. That is awful and worthy of criticism, if not outright condemnation.

Feb 15, 2009 11:48 PM

Are We Headed For Another Real Estate Mess?

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