Suze Orman's Advice For Home Buyers Is Hard For First Timers

If the banks continue to lender $ to buyers that have little or no money down we will never get out of the recession we're currently in. Suze Orman and Dave Ramsey are right on!! Get your financial house in order! 8-12mos of your current salary in a savings account and 20% down.

Thanks for the article.

LOL Karen Anne!

There is a risk/reward to buying a home. If you don't want to risk anything, follow Suze. If you can stomach a little risk, follow John Paulson, Warren Buffet and Donald Trump who say now is definitely the time to buy a home. Low prices, low interest rates = rewards if you plan to stay in the home.

Sharon

Hi Wanda

Its not that I dislike that Advice,but  the alternative is continue to rent and I see no advantage in that for any one so I guess when we pick the wost of two evils. my advice is buy............Brad

Suze's advice may be good for the move up buyer but definitely not for the first time buyer. We all need to start somewhere and if you make the right choice guided by a knowledgeable agent and lender you could one day be that move up buyer. In a perfect world we all would have 8 months of savings in the bank!

I had posted once before at #93 and just wanted to add as others have stated that her advice is general and should be used as a guideline - each person's situation is different and their goals in life are different.  I had suggested that a customer should watch her show for awhile  before purchasing to understand that buying a home should be part of the whole picture - it's not just a matter of what is a good guideline to purchase a home.  Some people have explained some different suggestions on calculating the variables, and I think that the customer should be making the decision after they have all the suggestions.  Maybe someone is comfortable with 3.5% down and they have more reserves, or any other combination. 

I want to be someone's Realtor for life, so I often think when a customer buys a home with little down and low reserves, what happens if they have their pay cut (like loose overtime), one person loses their job (it can happen even if it appears they have a stable situation), someone gets sick in the family, etc. etc. , and they have to sell soon again.  Anything can happen.  We should ask them when they purchase - what is plan B?  If you have to sell and you don't have enough equity to cover the selling costs and the prices go down, what are you going to do?  They may have put 20% down and not received much back if they have to sell again, but what's the alternative - they do a short sale and ruin their life for many years, all because they qualified to buy originally with lower down and reserves?  What did they gain from that?  

The 20% down and 8 months reserves aren't really the point here - the point is we should help them to make a good decision - we can educate them, and it is their choice if they go ahead, but then it is an educated choice and they are aware of what the consequences are.  I think her show is good to watch for someone that has not considered a full plan of savings, investments, retirement, etc.  A lot of people may bash her, but it can also set some people on the right track to make a plan - the saying is that purchasing a home is the biggest investment you will ever make, it should be considered as that as part of the whole plan.

That would knock out almost all of the first time home buyers in my experience and would have knocked me out when I was a first time home buyer too. It's ideal, but not really practical and there are so many reasons to get into home ownership in this market!

Suzie Orman doesn't just offer conservative advice - it is so conservative that it is often wrong-headed and does more harm than good.  There are two major risks - the risk of losing your money and the risk that your wealth will be eroded due to inflation.  There has to be a balence.  Suzie lacks that and it prevents people from taking advantage of an ideal market.

Wanda, I so agree with you.  It would be great to have this conservative advice pan out but reality makes a difference.  I don't want things to go back to everyone getting everything but there does have to be some give for those who have stability and the ability to buy.

Hi Wanda, Great post, got a lot of people talking.

I think Suze is just a bit disconnected from the reality of most Americans. FHA was designed to make home ownership a reality for the middle class. Couple that with the down payment assistance programs, and it touches the upper lower class.  I have the same thoughts towards Suze as I do the Congressman/Representitive from Texas who recently submitted a bill to do away Freddie & Fannie altogether and go back to 20% down across the board. Ivory Towers have a way of skewing ones perspective. More thought should be put into the comments and actions of these people who have the public eye , based more upon who will be taking that advice, not on who is giving it. Both of them are very priviledged and disconnected from the real world, and I think there "advice" is more detrimental than beneficial.

Just my two cents.

I made some calculations based on what Suzi said.On average, it will take 10 years for a buyer in my area to save for downpayment and closing costs. Here is the difference between renting for 10 years and buying now. My assumption is that the inflation will stay at 2.1% (wishful thinking) and the home will have zero appreciation for the next 10 years.

• If the inflation remains at 2.1%, the net cost of renting for 10 years is $148,073.23; the net cost of buying is $80,708.30
• If the inflation gets to 5%, the net cost of renting for 10 years is $168,902.53; the net cost of buying is $93,620.03

It doesn't seem that the buyer will be better off renting.

Here is my Rent Vs. Buy blog post

Jana,

Excellent analysis.   Suzie is wrong once again.

Run your numbers with 12% inflation because we can easily be headed there.  The current inflation figures do not take into account the cost of fuel and food (as if those are things are luxuries - your government accounting at work).  

Second point is maintence.  The cost of non-maintence is more expensive than the cost of maintence.  By that I mean that a landlord will not upgrade to the most energy efficient appliances.  A homeowner could very well do that to reduce the cost of heating / cooling and providing hot water, which would significantly lower monthly bills.

If you're not the type of person who relocates every 3 years then buying a house should be a serious consideration.  Fixing your housing payment (outside of insurance and taxes) for 30 yrs can't possibly be a bad thing. 

As for the down payment.  I'd much rather see someone get into a $120,000 house with 3.5% down ($4200) even if they had the 20% ($24,000) and put the difference of $19,800 in the bank as retirement, emergency, college, investment, etc...

I don't know how Orman can argue with that.

I actually agree with Suze Orman (and Dave Ramsey who uses 6 months expenses instead of 8), and if more homeowners would have been conservative during the boom years...we wouldn't be in the big mess we are today.  Of course it makes sense that Realtors, who profit from 1st time buyer sales, would want buyers to leverage themselves to the hilt, get 100% financing, and just buy as soon as they can scrape together the money for an appraisal, but it's just another recipe for disaster.  1st time buyers may have to wait a little longer to buy, but there's nothing wrong with that.  Our instant gratification society likes to buy things before we can truly afford them, and you can see where that has gotten us...a country thats 14 trillion in debt, and a population that is just as much over their head.

Well, first, I'd like a definition of "Conservative". If by that it's meant 20% down payment, then it's correct in saying we wouldn't be in the big mess we are today. Instead, we'd be in a different big mess. The vast majority of home sales in the past 10 years just wouldn't have occurred at all. Why?

Well, you'd probably say that lots of people would have had the required 20% from the sales of their homes that had equity in them. Really? Who did they sell these homes to? Buyers who had 20% from the sales of THEIR homes? Really? And who bought their homes? Rinse, lather, rinse, repeat. This doesn't hold up.

Do you know the figure estimated as to the percenage of the population that currently has 20% of their home purchase currently in savings?

Better yet, how long will it take to save the 20% down if a potential home buyer started saving today. Take a look at this estimate from the Center for Responsible Lending. From that organization's name, you'd think they would agree with your statements, wouldn't you? HEY! IT WILL ONLY TAKE 14 YEARS TO SAVE THE DOWNPAYMENT! That's reasonable! And how about all those who had that in savings until they lost it in the big securities crash and pension and 401(k) wipeout?

I won't even address the statements regarding "Realtors" and their motivations in helping those 1st time home buyers. It's malignant.

Call it "Trickle Down Reaganomics" if you like, but what happens when maybe 80% of the home sales in the last 10 years didn't happen?

We'd all be looking for a different line of work. But what job would there be in that economy?