USDA Prime … loan?

I know, I know …. I’m supposed to be working on to the “M” phase of my DMAIC approach to getting out of debt – measuring where my debt is and how my income is spent.   And truth be told, I’m actually working on a budget for the first time in my life and found some very helpful budgeting and debt tracking excel forms online.   But I suppose I’m not really budgeting yet … the current process is more of a recording as to where my money goes every month (something I’ve never done before).   I have to say, psychologically I’m a lot tighter with my money when I’m forced to actually record where and when it goes.  I’ve actually started bringing lunch to work, dropped an online dating service and cut my cell phone plan – all of function of looking at my actual take home pay and realizing that a significant part of my expendable income was going to relatively silly/non-essential things.  Seriously, I must have been spending $60 a week just going out for lunch (and that’s just lunch!).  I think I’m too embarrassed to take a look at what I was spending on dining out in total (those night of ordering or eating dinner out, lazy sunday brunches, overpriced coffees and who knows what else). 

But … the “Measuring” phase has temporarily been put on hold.  Why you ask?  Isn’t this a web log tracing an individual effort to get out of debt? 

I’ve decided to buy a house.  I know, I know … I’ve read Dave Ramsey too and this certainly is not the path layed out by the Total Money Makeover. 

* I don’t have all my debt paid off

* I most certainly don’t have an emergency fund

* And I definitely don’t have a sizeable down payment

But  …. a USDA loan provides 100% financing, no money down, and no PMI payments!  This is even better than the FHA loan options I explored.  And while I’m no Warren Buffet, I really think this is a buyer’s market … especially for first time homebuyers.  

And I have to ask the Dave Ramsey’s of the world … if I’m not paying PMI and can essentially shift my rent budget to a home budget … is that all bad?  Granted, the home will probably cost me another $400 a month … but if I keep cutting out those lunches, online dating subscriptions (which I actually found to actually be an excellent way to meet people – despite the fact I was initially hesitant and never considered myself to be a guy that needed to resort to online dating)  and who knows what else … those extra funds should be doable! 

And with that being said … I’ve been pre-approved for a $175,000 loan and put in an offer in on a home today – listed at $173, 000 and I offered them $162,000 (seller also covers closing costs).  

My thinking –

1)  I can start building equity (and do so even faster with no PMI payment) in an actual home for just slightly more than what it costs me to rent a place.  AND … with a USDA loan I can accomplish this without having to put any money down! 

2) I will qualify for the $8,000 tax rebate and can just put that right into my consumer debt (in fact, that’s enough to pay off one of my credit cards). 

I’d like to hear about other first time home buying experiences.  Maybe I’m approaching the situation with flawed logic – so tell me where I’m going wrong?  If it sounds like I’m repeating a mistake you’ve made in the past … well pay it forward and let me know!

For information on USDA loan options and requirements, check out –

http://www.rurdev.usda.gov/rhs/sfh/GSFH_Information/individuals.htm

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2 Responses to USDA Prime … loan?

  1. Michael says:

    I can stop reading your blog at this point. A $163k home on ~$40k base annual income?

    Sorry. You’re cooked. Whoever’s insuring this loan (the taxpayer) is cooked. Whatever broker/realtor/banker put you in this deal ought to be taken out back and thrown in a pile of hungry red ants.

    Have you learned NOTHING from the last 2 to 3 years? Nothing at all?

    The fact that you cannot differentiate (or simply don’t wish to do so) between what “rent” constitutes, and how that’s different than a mortgage payment with its accompanying liabilities, tells me that you’ve been SOLD.

    You have no savings.

    You have no down payment.

    You have $30k in debt.

    You’re buying a $163k house on a $40k base income.

    Put simply, you’re a foreclosure in waiting. You (and the gov’t policies encouraging you) are why this crisis is not anywhere near over, and won’t be over for years.

  2. Bryan says:

    I personally believe you would be better off to wait to purchase your home until you pay off your debt. You would be shifting $400 per month from your debt snowball payments over to a mortgage, which would slow down or stop you progress towards being debt free. There would also be a significant outlay in money for repairs, upgrades, insurance, etc. that you have not taken in to consideration as well. Remember that the leaking toilet or dripping faucet must be repaired at your expense, not the landlords. I certainly understand why you want to take advantage of the tax credit, but I think you can pay off your current debt in 12-24 months and then start your home purchase process. If you find a home where your total monthly payment is about the same as your current rent, I would not have as big of an objection. Stay on track to your goal of being DEBT FREE FIRST!!

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