Davis Motor Sales banner ad
davesays300 greenKENTUCKY (8/4/13) – This week Dave discusses 'Not enough down payment?' and 'Loving your friend enough for the truth'

Dear Dave,
When is it okay to purchase a house without making a 20 percent down payment? - Hannah

Dear Hannah,
When you’re willing to pay private mortgage insurance (PMI). And that’s not something you want to do.

PMI costs about $75 a month per $100,000 borrowed. So, if you borrow $200,000 on a home, and you don’t put down at least 20 percent on the transaction, you’ll have to pay out an extra $150 a month as part of your mortgage payment.

Private mortgage insurance does nothing for you except pay your mortgage company in the event they have to foreclose on you and they lose money. PMI is foreclosure insurance that protects the lender, and you get to pay for it if you don’t make a 20 percent down payment. In the scenario I mentioned before, that would be an additional $1,800 a year on a $200,000 loan. In a sense, that’s an extra 0.9 percent on your interest rate. That’s what it feels like.

So you can see that PMI is not a positive thing. Often, a first-time homebuyer will purchase a house with 10 percent down then pay the other 10 percent as quickly as possible in order to get rid of the PMI. Stay away from it, Hannah. It’s nasty stuff! - Dave

Dear Dave,
I have a close friend whose 17-year-old daughter is going to college to become a high-school band director. Her daughter wants to take out student loans to attend an expensive private school, and tuition alone over four years will cost $100,000. I feel this is a really bad idea, but I don’t know how to talk to her about this. - Natalie

Dear Natalie,
I’m sure your friend and her family are nice people. But what we’ve got here is a little teenage girl who has her heart set on something, and no one has told her no in a while. You’re getting ready to help introduce a new word into her vocabulary, because what you’ve described to me is stupid.

Listen, I love high school band directors. It just doesn’t make sense to spend over $100,000 on a degree to become one. Most of them make about $30,000 a year, so the return on investment for this kind of thing is terrible. It doesn’t matter if you’re a band director, English teacher or a doughnut shop owner, you need to figure out what you’re going to make versus what you spend to get there.

Make sure you talk to your friend directly, not her daughter. If you do that, you’ll end up branded as mom’s mean friend. Use your relationship and history together to help her see this is a train wreck waiting to happen. My suggestion would be for her daughter to live at home, work, and attend a community college for a couple of years. Then, when she transfers to a four-year school, make sure it’s a state institution and she keeps working.

The trick is to kindly and gently maintain enough influence to guide these two weak people away from a horrible decision. At the same time, you’ve got to be strong enough to call mom out for not stepping up and providing proper guidance. Mommies who don’t try to stop their babies from doing things this dumb are known as bad mommies. People who spend $100,000 to $150,000 to make the kind of money that’s waiting on her daughter are either young and inexperienced, or they’re what are known as fools.

I’m sure you’ll find a nice way to say it, but basically your friend needs to grow a backbone and tell her daughter no. - Dave

* Dave Ramsey is America’s trusted voice on money and business. He’s authored four New York Times best-selling books: Financial Peace, More Than Enough, The Total Money Makeover and EntreLeadership. The Dave Ramsey Show is heard by more than 6 million listeners each week on more than 500 radio stations. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.

 

Disclaimer: The content supplied by columnists and letters to the Editor on this site does not in any way, shape or form, implied or otherwise, necessarily express or suggest endorsement or support of any of such content, statement, or opinions therein. SurfKY News does not necessarily adhere to or endorse content provided by outside non-staff sources.

© Copyright 2015 SurfKY News Group, Inc. All rights reserved. This material may not be published, broadcast, or rewritten without permission. SurfKY News encourages you to share this story on social media.

Posted on 2/2/14
3/13 - 16
1 DOW 18,203.37
-85.26 (-0.47%)    
2 S&P 2,107.78
-9.61 (-0.45%)    
3 NASDAQ 4,979.90
-28.20 (-0.56%)    
3/13 - 16

Most Read This Week

March 02, 2015 8817

Madisonville Teen Faces Numerous Drug Charges

in Local (Hopkins) Top News by Madisonville Police Department/Hopkins County Detention Center
February 25, 2015 8003

Multi-Agency Investigation Nets Large-Scale Meth…

in Top News For All Sites by Trooper Stu Recke
February 24, 2015 7819

Two Charged in Central City Meth Bust

in Local (Muhlenberg) Top News by Trooper Stu Recke
February 22, 2015 7662

Easter Cuties Pageant in Memory of Shanice Bean

in Top News For All Sites Touching Hopkins by Tammy Holloway, SurfKY News
February 25, 2015 6246

New Asian Restaurant Coming to Madisonville

in Local (Hopkins) Top News by Gary Gates, SurfKY News
February 23, 2015 5590

Fire Departments Respond to Wester's Body Shop

in Local (Muhlenberg) Top News by Shawn Freels

Most Read This Month

February 12, 2015

UPDATE: Name of Pennyrile Fatality Officially…

in Top News For All Sites Touching Hopkins by Doreen Dennis, SurfKY News
February 09, 2015

Police Pursue Man after Fight at Taco Bell

in Local (Hopkins) Top News by Madisonville Police Department/Hopkins County Detention Center

Stories Trending Today

March 02, 2015 8817

Madisonville Teen Faces Numerous Drug Charges

in Local (Hopkins) Top News by Madisonville Police Department/Hopkins County Detention Center
March 03, 2015 4260

Three Arrested during Traffic Stop

in Local (Hopkins) Top News by Madisonville Police Department/Hopkins County Detention Center
March 02, 2015 3421

HCSO, MPD Join to Bust Alleged Drug Trafficking…

in Local (Hopkins) Top News by Hopkins County Sheriff's Office
March 02, 2015 2445

Officers Respond to Complaint of Drug Use; Arrest…

in Local (Hopkins) Top News by Hopkins County Sheriff's Office/Hopkins County Detention Center
March 02, 2015 2103

Job Fair Tomorrow in Madisonville

in Hopkins News by Kentucky Career Center
March 02, 2015 1955

UPDATE: Escapee Apprehended

in Top News For All Sites by Stu Recke
March 02, 2015 1865

Madisonville Police Arrest Reports - March 2, 2015

in Hopkins News by Madisonville Police Department
March 02, 2015 1577

Greenville Police Department Reports Released;…

in Local (Muhlenberg) Top News by Wes Miller
March 02, 2015 1537

Dawson Springs Man Charged Multiple Offenses Plus…

in Hopkins News by Melissa Heflin
March 02, 2015 1474

Locals Flock to Yoga for Unique Wellness Technique

in Local (Hopkins) Top News by Doreen Dennis, SurfKY News