4 ms·

Thanks for clearing that, it is exactly what I thought it was. But still, I am curious: how do you solve the problem when you got only a house that your parents

Thanks for clearing that, it is exactly what I thought it was. But still, I am curious: how do you solve the problem when you got only a house that your parents own but its price its close to nothing, due to bad location? Basically, you don't have much to guarantee for the mortgage. How do people that get from low into middle class solve that? Save for decades until you have enough? I am clueless of the options...

axaxs 11y ago
You don't have to have much or any collateral really to begin with. The house you are purchasing becomes the collateral. So you don't have to put up a previous house to get a new house. Essentially, you find a house you like. Let's say it costs $100,000 USD. You go to a bank and tell them you want a loan for this amount with which to purchase the house. This is where it gets a little muddy - depending on the loan type, some want 3% down, some 10% down, etc etc. My most recent loan was 0% down, but a higher interest rate. The reason that lenders are willing to do this is two-fold. Firstly, if you don't pay, they will take the house back. So they generally make sure the house is worth equal to or more than the loan amount - hence why many want a down payment - so that the loan amount is less than the purchase price, in case they have to take it back and resell it. Secondly, they stand to make much interest over time. You can run the numbers, but that $100,000 house you'll end up paying 50-60,000 or more in interest over the course of the loan. Hope this helps.
- gorankami 11y ago
  It helps a lot, very informational, thanks!