The Old Folks Home

[Alaskan]

There is one other way to purchase in the US.  I only just learned about it in the past ten years.  Its called a land contract and its between you and the owners of the property.  The owner keeps the title till the contract is paid off.

I have a friend in Michigan that bought fifty acres plus a couple of houses.  The original land contract purchasers were allowing a farmer to grow alfalfa on the land.  They defaulted and walked away so my friend got it from the original owners.  Who happened to be very very nice people.  They even helped them fence for their horses.   and loaned them a tractor.

deb

I thought that was just "seller financing". You get the loan from the person selling the place, instead of the bank.

Lots of places in Alaska are not able to be financed by a bank. The house is way far away from "code", or the septic is "illegal" or whatever. Sometimes the bank will still lone money, but with a huge down payment, depends on how bad the house and etc. (road, or no road, etc.) are.

 

[Alaskan]

Oh, "owner financing" that is what it is called.

 

[perchie.girl]

Quote:
they are called by different names depending on the area. My friend was buying in a very rural part of Michigan.

But yeah seller financed.

https://en.wikipedia.org/wiki/Land_contract

There is also rent to own... mom and dad did that when we moved to San Diego. They rented their place to own from the Owner. The deal was once they paid the down payment He would carry the mortgage.

deb

 

[Alaskan]

Gotcha.

 

[bruceha2000]

Diva, we too paid for everything as we got it, never using credit. Part of the problem when we were looking to get a loan to buy a house was no credit history. It's taken us a little while to establish a good credit history, but we use the credit card when we have the money, pay the regular payments on it for a couple months, then send a big payment to pay it way down. In a couple months, we repeat the process.

You DO NOT need to carry credit on your CC to get a good credit history. Good credit history is paying off the loan on time. Pay it off monthly, do not ever pay interest on your CCs.

If you want to screw your credit rating, get a lot of credit cards. Even if you don't use them the mere fact that you COULD have a ton of debt at the drop of a hat makes the lenders very nervous.

But in some ways having debt can help you accumulate wealth as well. For instance, buying your own house early and financing it with a loan tends to be a good idea. That way, instead of paying rent you're actually saving money while paying for your living, since you're paying off the debt. I wish we would have bought something earlier. There are extreme cases too though, for instance in Sweden people traditionally have mostly paid interest off of their mortgages. They just passed a new law there, limiting the pay back time to 105 years (!). You can pay off interest for 5 years, but after that, a percent of the loan has to be paid off annually. They've calculated that the average length of a mortgage there has been 140 years (!!!!!). That really doesn't sound like a healthy market to me. Basically people have been taking loans that their grandchildren eventually have paid off. In most cases, the only way to get rid of the debt has been to sell the property.

Here in Finland, the typical timeframe has been 30 years, but I think most banks prefer 20-25 years with new loans now. Still, with interest rates as low as they have been lately, the cost of living has been quite low. Property prices have gone up quite a bit though, so when the interest rates eventually go up, people are going to have a hard time paying off their loans. One nice thing about the Finnish housing market is that it tends to be pretty stable, you don't have areas going up and down in the same way as in some countries. Of course, there are some exceptions to the rule, like the city of Salo which is like a mellow version of Detroit at the moment with no one buying houses there due to bad employment options, mainly caused by Nokia packing up their bags. A large percentage of the population there was employed by Nokia, probably around 15-30%, so closing down their functions there hit the area pretty hard.

Generally speaking, yes it is better to own, pay the mortgage and deduct the interest than it is to rent. The most common time that is a bad idea is if you live somewhere like Salo. Can't get another job locally and no one local will buy it because they don't have a job either. So IF you are concerned the job market will dry up, renting makes you much more flexible.

With regard to interest, yes the first 15 years of a 30 year mortgage is mostly interest. It slowly works its way down.

Al, say a house costs 100 bucks (to simplify things a bit, housing isn't that cheap here =P). To get a loan here, you need like 10-15 bucks of own money saved up, so you need a 85 buck loan. The house is worth 100 bucks, so 70% of that is 70, meaning you need to come up with an additional 15 for security from somewhere, like your car, stock, another property or whatever. Then, if everything goes to heck and you lose the house, and let's say you haven't yet paid off anything, forfeiting the house to the bank only covers the 70% of the value, meaning you still owe the bank the 15 bucks that's left of the 85 you borrowed. So either you gotta also forfeit the other property you put up as security, or figure out some other way to pay off the rest of your debt. Crappy for bad situations, but on the other hand it leads to more stable banks, and maybe works as an incentive to not buy overly priced property, and also keeps the prices down a bit.

I have never heard of a bank here expecting collateral for a home loan since the home IS collateral. The bank owns it until you have paid the loan in full. If you don't pay, yes they will take it back. Generally speaking, real estate increases in value over time, things like cars decrease. Bail on the house in 5 years and that car you used as "security" is likely worth very little. And yes there were several places in the USA where people who had bought "relatively" recently went "under water" (meaning the house was worth less than the mortgage on it) when the bubble burst. A lot of them walked.

With regard to the discussion about down payments, when I bought my first house in 1984 the requirement was 20% down. Does NO ONE remember the housing crash of 2008? Loans made with ZERO down, points included in the mortgage, etc to people who couldn't afford to buy a washing machine let alone a house? They tightened that up, for a while but I think they are loosening it again. BAD PLAN!

"land contract" - there has never been anything forbidding people making a contract between themselves and not using a bank at all. The seller is the bank. The thing you DON'T want to do as a seller is to carry a second mortgage. If the buyer can't get all the money at the bank, find a different buyer. The bank ALWAYS has the first mortgage and if the buyer fails to pay, the BANK owns the house and the person holding the second usually gets nothing.

Felix, I don't think you can hijack a Random Ramblings thread.

 

[getaclue]

bruceha, true the payment on a loan is the credit history, except we've never had a loan for anything. I never mentioned a bunch of credit cards, either. I mentioned a credit card. The credit card works faster than a loan to establish, and boost the credit score initially. We were wanting to buy a place, but didn't have the money to buy it outright yet, and we were having a very hard time getting financing on a home, due to no credit history whatsoever. I don't even finance auto insurance. I pay the entire year in full, and save quite a bit since there are no finance charges. The place we wanted got sold, so we decided that it might not be a bad idea to try to establish some credit anyway.

 

[perchie.girl]

Another thing that keeps many people with a mortgage vs owning is that Tax deduction for the interest.

Also If you buy a vacation home that interest is also deductable. For what its worth that vacation home can be a motor home. providing you use a a second on your first home to buy it.

https://ttlc.intuit.com/questions/1...t-paid-on-an-rv-or-mobile-home-tax-deductible

deb

 

[Latestarter]

In order for a "vehicle" (RV, boat) to be considered a second home for tax purposes It must have a designated sleeping area, kitchen area for food prep/cooking, and bathroom facilities.

For financing on a home above 80% of the value with a conventional loan, lenders require you to purchase a monthly insurance policy to cover THEM against loss, It's called PMI (Private Mortgage Insurance). It's designed to pay off the balance of the loan above the 80% value if they have to foreclose on the home and auction/sell it for below the outstanding loan balance. If it sells for more than the loan balance, the net proceeds go to the owner/person who got foreclosed on(rarely happens). Typically the maximum conventional loan amount here is 95% of the property appraised value. FHA loans also require PMI and you can finance up to 97% of the value. With a conventional loan, you can petition the lender to remove the PMI requirement after 2-3 years or after the home can appraise high enough to get the LTV (Loan To Value) under that magical 80% mark. With an FHA loan, you have PMI for the entire life of the loan, it can not be removed. Then there is the VA loan program which will finance up to 100% of the property value with NO PMI. They do however charge additional points as a cost of doing the loan if you go above 90% LTV, called a VA Funding Fee. They do give a waiver to disabled vets where they don't need to pay any VA funding fee.

There are still alternative financing options out there to do limited documentation or even no documentation loans, but the rules have been tightened substantially since the mortgage crash. They typically require substantial down payments and excellent credit.

Typically (FHA and VA have some latitude here based on the "overall strength" of the loan request) home financing will require at least 4 lines of credit, 1 of which must have a minimum of a 2 year payment history. Ideally lenders are looking for a mixture of credit types to include a car loan, major credit card, store credit card and possibly a bank line of credit. Not all 4 lines can be store credit cards. For a mortgage loan, all lenders are going to pull a tri-bureau merged report... a report including all 3 major credit bureau's records on you. For revolving credit, typically the lender will only pull one bureau. Every time you request credit and you report is pulled, it dings 3 points off your score with the exception of searching for a loan to buy a car, but those credit pulls must all have happened within a 7-10 day period to count as one pull. Your score is dinged if you have too much credit, have recently applied for multiple new credit lines (within the past year), if you have borrowed more than 25-50% of the available credit you've established (maxed out cards, etc.)

A smart mortgage lender will TELL you; do NOT apply for any new credit until AFTER you have closed on the house. Many lenders WILL pull a credit check right before closing to ensure the borrower hasn't dug themselves a hole. You would be amazed at how many folks get into the process to buy a home and feeling like they own the world since they are "approved" for the loan, go out and buy a new car (screwing up their DTI - debt to income ration). Another good one is to tell their boss to pack sand and quit their job right before closing (lenders typically do a verification of employment right before closing). On that, conventional lenders are ALSO looking for a 2 year, unbroken employment history in the SAME line of work.

The other big thing is DTI. For conventional financing they are looking for total DTI below 30-35% The total monthly payment on all present credit lines + anticipated mortgage payment (PI only, not including taxes and insurance) with the mortgage ideally being <28% of the total. there is some latitude with substantial down payments and excellent credit... virtually no latitude with weak credit and low down payment. With FHA and VA there is much more wiggle room and they will allow up to 40-45% and in some cases even as high as 50% DTI depending on circumstances and overall strength of credit profile and expected ability to pay back the loan. A single person with excellent credit history/score & minimal outstanding credit debt and a stable income source will have a much better success ratio getting approved for a 50% DTI loan than a young married couple with multiple kids living paycheck to paycheck with marginal credit.

Typically for conventional financing, the credit score requirements start @ ~680 with 20% down and increase in requirement with decrease in down payment amount. For a 95% loan, most lenders want 740+ scores. FHA/VA loans will allow credit scores as low as 580 with exceptional documentation explaining why it's so low, but they prefer 620+. For example if the borrower was forced into credit difficulties because of medical bills/issues. If you have a foreclosure on your credit report, it must be more than 2 years past and you must have re-established a good 2 year credit history. If you've declared bankruptcy, even though all non active credit lines must be deleted after 7 years, foreclosures and banruptcies stay on the report for 10 years. If you have ever applied for "credit counseling" virtually all lenders will treat that as a bankruptcy since you have sought help because you have established bad credit habits to require counseling.

OK, enough random rambling... Been out of the biz for a while now but will gladly answer Q's via PM if you have any. Happy house hunting/debt creation! Remember that we are now a debt based economy... be sure to do your part!

Now back to your regularly scheduled rambling

 

[drumstick diva]

Well turtles come out ahead of us, no mortgage, no debt - they carry their house with them.

 

[Alaskan]

Diva... Feel my pain.


I thought I had mint chocolate chip in the freezer.

I sat down to eat it.


It is pistachios.