The real world: A man is self-employed and wants to buy a house using an $8000 tax credit promised by the government. Combined with his spouse, they make $5000 per month and want to know if the following choices are correct. (This came from a forum post)  Irvine Mortgage comments are shown below:
1. Borrow $8,000 from my parents, which will be paid back upon receiving the tax credit. We’d basically be having the tax credit forwarded to us.
2. Pay my wife’s credit card debt in full with the $8,000. This will free up $350 per month and improve her credit score within 30-45 days when it is reported to the credit bureaus. With approximately $15,000 of remaining debt, our combined monthly minimum credit card payments drop to about $400 per month. That $400 makes a big difference still though, so…
3. Get a mortgage pre approval and buy a house (that’s a lot for one step haha).
3. Hang in there and pay our mortgage, along with our $400 per month credit card payments.
4. After a couple months, apply for a $15,000 home equity loan and use that to pay off the rest of our debt and live very comfortably. ”
Based upon reading the above comments, I think you’re buying a house for the wrong reasons. I’ve had clients in similar financial situations do the same thing as you and fail. And here is why:
a. You have no cushion, no savings, no back up money, and you are living paycheck to paycheck. And, God forbid, if something were to happen to either one of you, you are SOL.
b. There will be additional expenses like home owner’s insurance, furniture, and other stuff that will be required when you move into a new home. Are you going to finance those, also?
c. The RE market is not going up and it may even go down more. There are a lot of homes sitting for months on the market and as prices fall, so does your chance of getting that 15K HELOC.
I would advise you to work at paying off your debt, put some of that 8K away, and use the rest to pay down your debt.
Real case example: Todd and is wife, Kathy, came to me to get a mortgage. And just like you, they had debts, no savings, etc. Well, I managed to get them into a home. A year later, I came by to visit only to find that they were losing their home because Todd had hurt this back at work. And they are still in court over the injury with his employer. I’m sure you can figure out the rest of the story.

The moment you pack your suitcase, kiss your mom and dad good bye, and step into your new apartment, you are starting to invest in real estate. Yes, you are investing in someone else’s real estate. Every month that you pay the rent, your landlord is taking that money and most likely he is using it to pay down his mortgage.  Given time, he will own that apartment building free and clear, while the tenants will keep making payments to him. So why not start investing in Real Estate for yourself?
You will make some type of payments for real estate unless you own your home free and clear. Rather then live in an apartment, you can look for a condo or a starter house. The payments will probably be a little more, but you will have the freedom to have roommates to share your expenses. But you might be thinking to yourself, “How am I going to qualify for a mortgage at my age? I can’t even qualify for an auto loan without my parents co-signing.” Let me help you get on the path to real estate ownership without spending much.
You will need to do a little work researching online, scanning the newspaper, and attending real estate investment clubs meetings. The point is to get yourself out in the real estate investment community. Build a rapport for being straight up and reliable, offer to help more seasoned investors with their errands. Yes, do a little kissing up. It won’t hurt and it doesn’t cost a dime. With these connections, you will be able to get into your first property with 0% down and maybe zero out of pocket expenses.
Once you establish your reputation with a few of these seasoned investors, explain to them that you want to get your own place, but have no money to start investing. Many of these investors have properties sitting empty and they are making payments on them. That’s your chance. Offer to move-in and make monthly payments on a land contract (Contract for Deed in some states). Most answers will be “yes”.
Make sure to get the proper forms and agreements filled out, signed and recorded at the county’s record office. This will assure that you have a claim to the property.
Now that you have your first house, you can get rid of that apartment and start building your wealth.