Rule #1: Don't buy what you can't afford...

A recent newspaper article lamented the fact that many first-time home buyers seeking to purchase properties with a modest amount down and a mortgage loan are being outmaneuvered for the same properties by investors with cash. The article stressed that often the cash offers are less than what it being offered by the mortgage-borrowers but sellers view is that 'cash is king'.

One thing the article didn't say is that most of these mortgage-borrowers, 1st time buyer's in particular, are asking for 'concessions' from the seller. By concessions I mean 'give backs'! The buyer wants the seller to give them up to 6% of the contract sale price to help cover the buyer's closing costs, the vast majority of which are associated with the loan itself. That's a big chunk of money any time, but especially now when sellers are already feeling used and abused by the falling market. That additional 'concession' amount is huge in comparison to what most sellers already see as a loss. The problem begins with FHA allowing and approving of this practice and ends with loan officers at every lending institution who push this as a way to get more house for less money.

My take on it is this: if you can't afford it , don't buy it. Relying on rebates other than the governments tax credit bill to get you into the next 'level' home is absolutely absurd. We got into this economic mess because people bought what they couldn't afford, thanks to sub-prime loans and the practice of issuing 1st and 2nd mortgages at the closing table with no money down. Now the issue is called 'concessions from the buyer' but it's still part of the same problem.

If you can't afford it, don't buy it. FHA accepts as little as 3% in downpayment. If you have more than that, either put it down on the home, use it for remodeling or repairs, or save it for a rainy day. But don't expect the sellers to come up with money you don't have. The average seller is making little or no money on the sale of their property these days and a request for them to give a buyer even more just doesn't fly, especially as compared to cash! When a seller gets cash there isn't any need to worry that the buyer won't ultimately be able to get the loan.

I tell all first time buyers or those seeking 'contributions' from the seller to be prepared for a stormy ride. And I tell sellers to weigh the options before making a decision. An offer is hand, even with concessions, is often worth more than continuing to have a property languish in a slow market. But it is rarely worth more than cash.