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As somebody who participated in the 203k program I can attest to its ability to provide a viable solution for a house that wouldn’t otherwise qualify for an FHA loan due to condition problems.

FHA loans require that that the house pass inspections with much higher criteria like age of major mechanical features and roof etc. Prior to the existence of exotic loans like Alt-A and Option ARMS the primary cause of late payments and foreclosure was major repairs. A heater fails and you need to fix it, so you don’t pay your mortgage.

Secondly when doing a 203k you must get an appraisal for the value of the house as if all the work is done prior to being approved for the loan. So you need to know what improvements need to be made and have actual contractors estimates in hand prior to closing on the house. It is a major undertaking to buy a house using the 203k process. I’m confident that if she can undergo that process successfully then she is probably organized and has her stuff together and can handle whatever life throws at her.

Now the idea of doing all this prior to having a college education is questionable, but after reading Mathew Crawford’s Shop Class as Soulcraft I’m indifferent to this whole Creative Class/New Economy thing. She might be better off just becoming an electrician.

I’m curious about the comment dinging the Tejeda family for taking on “massive” amounts of debt. How big a mortgage is that commenter carrying? It sounds pretty patronizing, to me. The FHA is insuring LOTS of loans for people of all kinds. If it’s outrageous for the Tejedas, then it’s outrageous period. Even for some of your own neighbors. We live in a county that ranks as one of the most affluent in the country, and there are foreclosed homes foreclosed all around us — some that were purchased for ten and twenty times what Tejeda paid. That’s too much money for the FHA to insure, so in a way it’s comparing apples to oranges. But with all the ire directed toward the Tejedas, where is the ire directed at people who truly took on massive amounts of debt? The Tejedas sound like people who are playing by the rules, know what they are into, and are determined to make it work. They don’t deserve ugly comments.

I laud Denise in her determination to own a home. I wish I would have bought a home rather than go to college, I then could have borrowed against that home to buy a business. I think Clusterstock’s comments are a bit shortsighted… college also creates massive amounts of debt. If the student gets their loan from the department of education, the taxpayer is still on the hook if its not paid back.

Just a note on foreclosures. I believe a lot of those foreclosures could have been prevented by lifestyle changes. A quick survey while my friend and I were buying a foreclosure, over 90% of foreclosures we went through had a direct tv dish on the roof. I admit that our measure was a very unscientific one, but it is interesting.

It may look like Tejeda has taken a big amounts of debts and risk. However, if something goes wrong, and I unfortunately believe it will, she only loses her creditworthiness. If the house market recovers, she will make a huge return on her investment. Taxpayers will take the risks while she may pocket a profit. I cannot think of any other investment that has so little risks and so much potential. Do you still think it was such a bad deal after all?

I wanted to comment on the point other commenter’s made, that Tejeda would be better off investing her money in a college education. I don’t agree that college is always a good investment. It can be just as bad an investment as risky real estate.

Many people don’t finish the programs they start and many don’t work in the fields they supposedly trained in. Many college educated people do work that they could have gotten without the college education - not always low paying work either.

Maybe for this young woman at this point in time, a house is a good investment. She certainly seems very articulate and has thought a lot about what she is doing. A lot of people don’t spend enough time choosing their college programs and colleges.

I also wanted to comment on how some people think that it would be a horrible life if she lived in the house but rented out rooms. The mentality that this is wrong is how we got into the financial mess that we are in. We expect too much! My partner did exactly that when he was on his own - scraped together the money to put down on a house and rented out whatever he could - and within 15 years his house was paid for. He still lives in the house and hasn’t had a mortgage payment in 10 years. What is so sad about that?

To all the people who support her decision: Would YOU have loaned her the money? It’s a lot easier to be “nice” with other people’s money.

Kal has hit the nail on the head with a beautifully succinct response - Would you lend her the money?

There’s a reason why responsible lenders want payments to be about one-third of income. Any higher and the default risk quickly rises to unacceptable levels. Plus you want to see some skin in the game with a 10-20% down payment.

Denise may or may not be one of the ones to default. But how many loans out of 100 like this will default? Oh wait, I know…how about if we pool together a couple of thousand mortgages like this and then slice and dice them up into complex financial instruments to spread the risk? Then we get the ratings agencies to slap a AAA rating on it…..