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July 3 2018

Some People Are Buying Houses without Saving for the Down Payment

by Arrah Massimini

Although many first time homebuyers scrimp and save before making, what for many may the largest purchase in their lives, they may be surprised to learn that all their work and sacrifice was unnecessary.  No that wasn’t a misread! 

The Wall Street Journal explained how this works in an aritcle headlined “Would-Be Home Buyers Are Told: No Savings? No Problem."

 The article told the story of 28-year-old Kyle and Reese  Rademacher of Cheyenne, Wyoming.  The Rademachers, it seems, “were on a tight budget after paying for their wedding, and a credit union had already denied their mortgage because they didn’t have enough in savings.”  

Rather than deduce they might need to save more, reduce their debt, or seek higher paying employment, Ms. Rademacher turned to a program called HomeFundMe, to solicit donations for her down payment.  The aim of HomeFundMe, which was developed by lender CMG Financial last year, is to “help buyers cobble together the funds to buy homes...offering options for borrowers who have good credit and income but are struggling to save.”

 Ms. Rademacher and her husband—-with the help of HomeFundMe, “have closed on a $320,000 in Cheyenne, Wyoming.

There are a number of options such as HomeFundMe, and I submit that this does not bode well for the economy, the housing market, or development of sound financial behaviors.

According to Zillow, the median cost of a house Cheyenne, Wyoming is $240,000.

The Rademachers could have saved for a longer period of time or perhaps even looked for a house with a lower price tag. What does it say that a healthy, able-bodied couple opted for this path to homeownership?

The Wall Street Journal also cautions that the HomeFundMe option and plans like it will have an unfortunate effect on the housing market:

Economists caution that actions such as loosening credit standards or supplying borrowers with more down payment money worsen the problem by creating more demand in a supply-constrained market, leading to a further overheating of home prices. And if home prices later fall, borrowers with little of their own money invested are more likely to simply walk away, they say.

One of the triggers for the financial meltdown at the end of George W. Bush's presidency was that too many borrowers were not required to make sufficient down payments.

My advice to those who would be tempted some some of these exotic options: develop sound financial habits, including saving your money so that you can GoFundYourself.

 

 

 

 

 

 

Independent Women's Forum is an educational 501(c)(3) dedicated to developing and advancing policies that aren’t just well intended, but actually enhance people’s freedom, choices, and opportunities. IWF is the sister organization of the Independent Women’s Voice.​
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