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.

e-max.it: your social media marketing partner

LIKE SurfKY on Facebook - Click here to LIKE us now.

© 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

In Other News...

Owensboro Health's Harvest Market Opens June 3

OWENSBORO, Ky. (6/1/15) — For the second consecutive year, Owensboro Health will present Harvest Market, a weekly event… Read More

Hopkins District Court Fines Handed Down

HOPKINS COUNTY, Ky. (5/31/15) — The following fines were handed down in Hopkins District Court recently: Lisa K.… Read More

Most Read This Week

May 27, 2015 7350

VIDEO: Sparks Fly Over Hanson Rezoning Issue

by Tammy Holloway, SurfKY News
May 30, 2015 6678

Study of Virus Attack on Cancer Sees Success

by Julie Heflin
May 28, 2015 6452

Four Charged with Burglary for Entering Elderly…

by SurfKY News
May 27, 2015 4199

Midnight Ride on Rabbit Ridge Ends in Jail

by SurfKY News
May 26, 2015 4009

Mandarin House Gearing Up to Open Soon

by Gary Gates, SurfKY News

Most Read This Month

May 15, 2015 11266

New Madisonville Business In Full Operation Soon

by Tammy Holloway, SurfKY News
May 23, 2015 9057

Missing 5-Year-Old Boy Found

by Doreen Dennis, SurfKY News

Stories Trending Now

May 31, 2015 1327

Hot Button Item Draws Hanson Crowd to Zoning,…

by Tammy Holloway, SurfKY News
May 30, 2015 1235

Rods for Relay Raises Funds for ACS Relay for Life

by Tammy Holloway, SurfKY News
May 31, 2015 1192

YMCA Summer Food Service Program

by Kelly Forbes
May 31, 2015 1071

Hopkins District Court Fines Handed Down

by SurfKY News
June 01, 2015 978

Authorities Discover Meth Lab While Assisting…

by SurfKY News
May 31, 2015 978

Survivors, Caregivers, Supporters Gather for…

by Tammy Holloway, SurfKY News
June 01, 2015 803

Madisonville Police Arrest Reports Released -…

by SurfKY News
May 31, 2015 736

Hopkins County Traffic Advisory

by Keith Todd
May 30, 2015 730

Whitfield Announces Congressional Art Contest…

by Ed Whitfield
May 31, 2015 659

LG&E and KU Unveil New Outage Texting Option…

by LG&E and KU News