[quote]Testy1 wrote:
[quote]angry chicken wrote:
[quote]Headhunter wrote:
[quote]angry chicken wrote:
[quote]Headhunter wrote:
[quote]angry chicken wrote:
[quote]Headhunter wrote:
The gov’t kept lowering the requirements to get in until anyone could. Only when a substantial downpayment is required will the bubble be gone. 20% should be the gold standard downpayment.
Mathematically, if a normal times return, the drop should be 20 or 30 percent more. If things get really bad, such as in Greece, a $400,000 house will go for 40,000…if a buyer could even be found. [/quote]
I’ve written a whole long fucking wall of script about this in PWI a few months ago. The Gov’t did NOT “lower the reqirements to get in”. People just got mortgages that were funded by private investors, and not backed by Fannie, Freddie, or Ginnie Mae.
These were called “Portfolio lenders” and had nothing to do with the government at all. They sold the loans on the secondary market to various hedge funds (remember Bear Stearns?)
The requirements to get an FHA loan have gotten WAY stricter. And you don’t need 20% down! The only thing that does is protect the bank in the event of a foreclosure. Why would you not leverage the most possible money via your mortgage and then invest the rest?
If I had 50,000 (and I do) I most certainly would not use it as a down payment when I could put down 3.5% on an FHA mortgage and invest the money in a better financial instrument than something as volatile at real estate. That’s just insanity!
Look at it this way: if you put 5% down or 20% down, you are still going to use the same criteria to qualify for a monthly payment. As long as you are buying a home you can afford it doesn’t matter. If your home declines in value, so what? pay your mortgage and it will eventually gain value again. "but what if I have to sell?
If I don’t put as much down, I’ll have to bring money to the table". Then bring the money to the table AT THAT TIME! You’ve still lost it anyway weather you put it down at first or if you bring it to the table later. At least you’ve been able to use the money to earn interest on in the meantime if you put it to work for you instead of trapping it in your house.
To reiterate, the only ones who benefit from a 20% down payment is the BANK. Putting more than the minimum down is just silly, IMHO. That’s what mortgage insurance is for. Or just buy the whole thing with cash. Either way, the market is unpredictable. No one has a crystal ball. Buy your home with the best terms available to you at the time. I remember times where people were happy as shit with a 10% interest rate! It’s all relative.[/quote]
Didn’t get the memo about the bubble we had?
[/quote]
You’re right, HH. We should all just sit in the corner and be scared. No one should buy anything - THAT’LL help our economy! Last time I checked, neither you, I, the talking heads, the FED, or anyone else has a crystal ball… The truth is we DON’T KNOW what is going to happen, or how policy will be adjusted to adapt to what is going on.
If you reduce it back to economic basics and get some altitude and look down on the situation, real estate is still a FINITE commodity. In the past few hundred years in the United States it has ALWAYS appreciated in value despite short term market fluctuations. Those are the facts. But facts like those aren’t as SCARY as the news about the upcoming bubble that will destroy us all!!! Run for the hills, everyone! The BUBBLE is about to collapse!
Last time I checked we are a very resilient country, HH. We will be fine in the long term.[/quote]
If you buy the biggest and most expensive house with the lowest down payment poossible, what happens when you lose your job? If someone has to put 20% down, they’re WAY less likely to walk away too.
Why do we have a resilient country, AC? Because people think they’re money and savings are safe? What if those things are not safe? What if someone got the idea to inflate away those savings, all for grandiose spending plans?
[/quote]
If you lose your job it won’t matter if you put down 20% or 3.5%. Here’s an example using REAL numbers: $300,000 sales price with 3.5% down ($10500) with an interest rate of 5%. The payment will include property tax of $285 (1.14 tax rate - pretty average around here), hazard insurance payment of $63 (.26 rate is the average I always use for this), mortgage insurance of $132 (.55 FHA rate - standard across the country) and a $50 HOA fee (pretty average around here).
The monthly payment is $2084 with 3.5% down payment. The payment with 20% down ($60000) is $1675 (Yes, the MI went away and the hazard went down slightly) The difference is only $409 a month.
[/quote]
AC if you add the mortgage insurance and the difference in mortgage payments, it comes to $541 a month, to me this is a significant difference, especially if you are laid off.
The wisdom of today’s financial planners says to use the cash for investing but what about the interest you are paying on the mortgage? Conventional low risk investments will be lucky to bring in 3% while you are paying +5%. Furthermore, I do believe that the low down payment criteria has led us to where we are, as many who couldn’t really afford it were able to purchase homes.
I do think this is a good time to buy in the right area, IF you can afford it. And I do remember the high interest rates. I bought my first house 24 years ago with an assumable mortgage of 9.75%, which was a steal at the time as the going rate was 13%. However, the house was only $34,000 and you definitely had to have 20% down. Oh for the days of $350 house payments.
[/quote]
Testy, My quick math description probably wasn’t as clear as it could have been, but I DID subtract the MI back out the payment for the 20% down option so the difference is really only $409.
To which I ask, if you were laid off, would you rather have a $2084 payment and $50,000 in the bank, or a $1675 payment with, say… $10,000 in the bank? Obviously if you have a super high net worth, putting 20% down is a no brainer, but if you DON’T, I think it’s irresponsible, IMHO.
Personally, I’m making a LOT better than 3% on my investments. I have a higher risk threshold than someone who is older than me would have, but nothing reckless…
As for the low down payment being responsible for being where we are, I have to disagree. It was the Stated Income and Stated asset loans and the industry wide FRAUD that was going on.
In today’s FHA lending environment borrowers are not defaulting at unacceptable rates even with a 3.5% downpayment because the INCOME qualification is so strict. Those that do default these days do so generally because of a loss of employment, not because they couldn’t afford the house when they bought it.
Given this case, I’d want them to have as much money in the bank as possible so that they could weather a potential “storm” of unemployment…
It’s ok to have some different opinions on this subject, and I’m glad you shared yours. My perspective is a bit different, though.