Would this be foolish?

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If I took out a $ 25,000 student loan to have a 20,000 down payment on a bank repoed house, would that work? I would be renting rooms out in the house, as well as living there, so that I could make the mortgage payments each month (Since I would be buying the house from the bank, wouldn’t the bank just work out monthly payments for me to make, without me having to take a home loan out from them to purchase their house?)

Being 19, I have little credit. My credit score is 728. I make about $ 800 monthly during the school year, and about $ 1000 monthly during the summer. Would I even qualify for a home loan if I wanted to purchase a house? If the value of the place goes down, can’t I just remodel to make the value go back up?

3 Comments
  1. Reply
    hoodlem
    May 16, 2011 at 6:08 am

    I like your drive at 19! That’s awesome. You would have to buy the house in full in a sense from the bank but yes they will set up payments after your down payment

    If you can get your parents to co-sign with you, by yourself right now you probably wouldn’t qualify.

    Go for it!

  2. Reply
    MVD34
    May 16, 2011 at 6:35 am

    Probably (it is foolish). The details matter a lot.

    No, you are not likely to qualify for a mortgage without a 5 year full time work history…that might change in a few months, but the mortgage market is tough right now. You are also not likely to qualify for a mortgage without a full time job. That isn’t likely to change in the next year.

    The remodel math that people seem to miss it this: If you spend $ 1, you will get 75 cents back when you sell. Two cases when it doesn’t work that way: (1) when something is preventing the house from selling. You must fix to sell. Typical case: Spend $ 1, get back $ 0.00. (2) When the house market is in a bubble, demand will drive up price of all changes that improve the standing of the house in the neighborhood or area in which it is located. Typical case, spend $ 1, get $ 1.10 back when you sell.

    You will note that (2) only happens rarely. It was the case for the booming market that ended in 2007. It is now longer the case. These days you are much more likely to have case (1) than case (2).

    Third problem with your plan — your student loan will have to be disclosed on your mortgage application as the source of your down payment. That isn’t going to fly. You cannot borrow money for a down payment anymore. That’s back to being a no-no.

  3. Reply
    alcan52
    May 16, 2011 at 7:31 am

    Interesting question. Although you couldn’t pull this off for reasons stated above in other posts, I do think you are thinking along the lines of attempting to save money (which is good). What is not good however is the fact that we are in a depression (history will record this as a major depression) and too many people are thinking that things are going to be returning to the way things were during the bubble. The days of easy fast money and asset values rising as a means of income are over.

    Im going to profile your question on a national radio show that I host on finance. Im going to use it as an example of how too many people are still drinking the housing KoolAid and how much damage has been done to the thought process of the younger generations as a result of the irresponsibility of the Baby Boomer’s greed. This market has a long long way to go on the downside.

    The days of the NINJA loans are over. No Income, No Job, or Assets. Those types of loans helped to cause the problems we are facing today. The fact remains that housing prices must fall to a level of where they are affordable to people based on the average wage of the AVERAGE working person. Also they have to fall due to demographics as well. There are 70 million Baby Boomers who will be selling their assets to 2 generations who are only 44 million in total. Boomers are going to over supply the market with housing and stocks. Generation X and Gen Y dont earn anywhere near on average as the Boomers, therefore prices will continue lower untill supply/demand equal. Or we will end up in a hyperinflation.

    You need to unlearn everything you have learned about rising asset values. This market isnt comming back and credit is being pulled. I have all 3 of my FICO scores over 800, have no debt, earn 3 times the average working persons wage and I have had 3 credit lines eliminated by my lenders in the last 2 months. This asset deflation and deleveraging process has a long, long way to go. Look for it lasting for many years to come.

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