Yeah. Unfortunately this only works if you have enough money after you pay the bills etc. to put aside.
And how do you expect to afford a loan if you don't have money to put aside?!
(excluding the rent to mortgage case, obviously)
The trick is you need to live somewhere. If you can't have a loan, the money goes to rent.
The difference is that a landlord wants a tenant who can actually pay the rent, but banks often hand out loans that are far more than the new homeowner can afford.
If a tenant can't pay their rent, the landlord will have to go through a long and painful process to remove them and find another tenant, and they'll likely be out many months of rent in the process, with nothing to show for it. If the bank doesn't get their money, they own the house, they get paid whatever costs they can't recover by PMI (which the former owner had to pay for), and they can potentially offer a loan to the next sucker to buy that same house.
That's actually pretty rare – and the problem wasn't the load but the fact that the banks which engaged in those practices for a historically brief period of time were allowed to shift the cost to other people.
I've applied for mortgages three times – 1998, 2008 and 2011. In 1998 and 2011, everyone did their due diligence correct. In 2008, the credit union and the New England regional bank both behaved responsibly while Bank of America simply confirmed my employer and pre-approved me for loan over 3 times higher than I was asking for.
Guess the only one of those three which had any problems whatsoever with loans? The other two had default rates which didn't significantly change throughout the crisis.
The thread has drifted in a non-sequitur way (or maybe I misinterpreted your comment).
They were talking about saving money vs getting a loan. My comment was from the buyer's POV: you can't save for a house because you need the money to pay rent.
Beforehand, you could not save or afford the cost of the loan. Afterwards, you will make more than enough to pay it back.
Which is also the implicit risk credit is meant to impose on financers, which is why most countries have regulatory bodies that try to incentivize these kinds of loans. You put what you have up as collateral to try to make significantly more, but if you fail you lose a lot of ground and have to start over.
To use a more concrete example, you can't make money weaving cloth when you can't afford a loom.
“If anyone can understand the tension between brick-and-mortar restaurants and the mobile army of food trucks that has stormed D.C. in the past year, it’s Stephan Boillon. After he lost his job at Dino in Cleveland Park in 2008, the veteran chef sought to launch an upscale sandwich shop on Connecticut Avenue NW. His plan was to offer only cold sandwiches, which would enable him to build a restaurant with no burners, no oven, and no deep fryers.
But even Boillon’s stripped-down concept was going to cost $750,000 before the doors opened—a figure that didn’t include rent, utilities, insurance, advertising, taxes, labor, association fees, or any of the other overhead it takes to operate a business in a neighborhood that expects a lot from its entrepreneurs.
So with credit tight and investment money scarce, Boillon found a cheaper way into the gourmet sandwich business: a food truck. For $50,000, one-fifteenth of the price to build his brick-and-mortar concept, Boillon started El Floridano, his rolling unit dedicated to home-made roast-pork Cubans and other bread-driven bites. Boillon had traded a restaurant’s higher profit margin for a truck’s lower start-up costs.“
http://www.washingtoncitypaper.com/articles/39815/inside-dc-...
The sort of capital needed for most businesses is beyond the ability of most people to save. For some businesses (like software or various types of personal services) you can pay a lot of sweat equity, but there's lots of other types that just plain need money capital. If you're just saving, most of these would be out of range for even the upper middle class.
Financing is even more important for business expansion. I can get a loan or raise money to buy equipment/rent space/hire people that'll let me expand my business to meet demand now. It'd take ten years to save that much from current profits.
"How were you able to start this with only $20,000?"
The restaurant business is particularly hard to break into: you need to rent the space, purchase all of the equipment (each piece of industrial kitchen equipment can run from the single to double digit thousands), furnish the interior, get certified, hire employees and stock perishables (including dishes), all before you can even serve one customer.
Ridiculous and asinine example, but I bet she started off with no more than a hundred dollars in capital. Which means that entrepreneurship, and ingenuity are what's most important. Capital will follow.
> And where the hell do you get this
> Do us a favor
> whatever your mind twisted it into
All of this violates the HN guidelines. Please re-read the site rules and try harder to follow them:
https://news.ycombinator.com/newsguidelines.html
This violates the HN guidelines and I'm afraid some of your other comments have as well. Please re-read the site rules and try harder to follow them:
https://news.ycombinator.com/newsguidelines.html
And I'm all ears if you have some valid, debate inducing criticism. Though, I'd appreciate it if you kept it civil, as others have already asked you.