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On the flip side...

Sticking with the housing market, here's the story of a young first-time home buyer. And I mean young. She bought a foreclosed home about a month ago. At age 20.

In fact, Denise Tejada and her 22-year-old brother both bought homes in the San Francisco bay area. Denise is a reporter at Youth Radio, which featured their story:

You gotta like them. Two immigrant kids saving from age 15, working hard, encouraged by their father to be smart with their money. But we wanted to know why they wanted to buy homes, what the process was like and what they're giving up to do this.

This week, I interviewed Denise. You can listen to it below, but here are a few details, some of which aren't in the interview:

Denise works three jobs so she can afford her new house. She makes $2470 a month but pays $1328 to service her mortgage. That means 54% of her income goes to the house, leaving her with $285 a week to live on. Doable, but tight. She's breaking the 30% rule and then some, not to mention she's still spending out of pocket to renovate the yard, fix the roof and paint.

She got a loan to renovate the place, which was just a "box" with no kitchen or bathroom when she bought it. She says the renovation has increased the value of her home from $155,000 to $255,000. In the interview, she describes the process of getting the loan.

She also answers the question, "Do you see this as an investment or a home?" (That's at 6:10)

Denise is clearly intelligent and motivated. She's learning a lot through the experience. And she's already light years ahead of many young people in terms of respecting the money she makes. But so far, she's sacrificed going to college to buy this home. And she's spending an awfully big chunk of her income on it. I hope she doesn't lose one of her jobs.

If she can find a buyer, she might make a nice profit. She'll also collect the first-time home buyer tax credit next April. But is this what young people should be doing? Take a listen. What do you think?

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Despite the obvious fact that based on any reasonable underwriting standards Denise cannot afford the house, I can't fault her for taking what amounts to a Government handout. She has so little "skin in the game" that even an eventual foreclosure will result in her financial gain. California is a non-recourse state, so if she never makes a mortgage payment she can not be held responsible for the cost associated with a foreclosure. Also, it would probably take a year or more to evict her if she defaulted. Her downpayment is equivalent to about half a years rent. No risk on her part since it's nearly all OPM.

Karen,

I did not look at the video. <a href="http://mangans.blogspot.com/2009/10/government-dominates-mortgage-market... read she was from Guatemala here.</a> But you are right, she claims to be from El Salvador in the video.

I don't see anything controversial about her decision to buy a house. She can buy a house if she wants to; I don't care what she does. What is inappropriate, i.e. "controversial", is the government has guaranteed the loan for such an uncreditworthy buyer. Please note that this does not mean anything other than that under traditional underwriting standards -- which is what we ought to be using now, certainly for loans guaranteed by the taxpayer -- she would not qualify for such a loan.

And I'd still like the question about immigration (status) answered.

The answer is that Denise is a US citizen and so are her family members.

Yeah so Scott, how did that citizenship come about? Did they come here illegally and then get amnesty? For example after 1986? Or some from of temporary protected status that then became citizenship? Because from what I know, it's next to impossible for someone from El Salvador to legally immigrate to the US.

Inquiring minds.

And yes it does make a difference.

If the taxpayers weren't giving her an explicit subsidy -- e.g. her rate would be a LOT higher without that FHA guarantee, assuming she could get a loan at all, which I doubt -- then maybe it would be a bit less relevant. But only a bit.

the questioning of her "status" here, as though it had any relation to the price of rice in China, is disgusting.

you come off as looking for a way to discredit her based on her heritage. it's foul.
sorry. but if no one calls it for what it is, it continues.
it is ugly and it is UnAmerican, since EVERYONE immigrated here excepting Native Americans.

She is just fixing it up to rent it out that is how they all do it. She will live in one room and rent the rest of the house out. Sorry i prefer to have a life.

Just by knowing Denise, I have faith in her. You guys don't know her and are quick to say she is too young or needs to get a life. But has it occured to any of you that this is what she wants to do. She is a very intelligent, hard-working young woman. Maybe this is her dream. Who are we to say she is wrong?

You focus on the wrong thing. People are entitled to their opinions about her buying a house at such a young age, i.e. with so little life and work experience. Don't worry about it.

The important issue here is the FHA guarantee of her loan; pertinent objections to that have been raised.

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