20% down mortages may return as the norm

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Throckmorton

Lifer
Aug 23, 2007
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Buy something more affordable. My brother just bought a condo in the prime downtown area with heated underground parking and 2 parking stalls for $250k. Houses in the city start closer to $300k. Condos located farther away from downtown are about $150-$200k.

My first property will probably be about $200k, 20% down would be $40k, and my net savings are about $10k per year. It will take maybe 5 years to save up for a condo at this rate. My income is less than the $50k median since I live in Canada where everyone is paid a bit less and everything costs a bit more.

Even then you'd be better off paying 5% down and keeping the other 15% in the bank for a rainy day.

Condos are the most stupid thing in the world. They always have insane fees. Not only that, but the idea of owning a piece of a large structure and therefore not having full control strikes me as ridiculous.
 

Texashiker

Lifer
Dec 18, 2010
18,811
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Insane, or the return to sanity?

If someone can save up the 20%, why not save up the whole amount and pay for the home straight up instead of having to take out a loan?

Personally, I think 20% (or more) is a good idea. Instead of people buying homes to raise a family, people look at homes as an investment. Market goes belly up, and the house is worth less then the loan, just walk away.

If people had to sink 20%, 30%, 40% into a house for a down payment, they would be less likely to just walk away. Instead of people buying 2, 3 or 4 houses as an investment, they would be buying 1 home to raise their family in.
 
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Throckmorton

Lifer
Aug 23, 2007
16,829
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If someone can save up the 20%, why not save up the whole amount and pay for the home straight up instead of having to take out a loan?

Ban home loans! Only irresponsible people who can't save money take out loans! Credit is sin! Just stop buying "flat screen TVs" and "rims" and you'll be able to afford a house without a loan.
 

Texashiker

Lifer
Dec 18, 2010
18,811
197
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Ban home loans! Only irresponsible people who can't save money take out loans! Credit is sin! Just stop buying "flat screen TVs" and "rims" and you'll be able to afford a house without a loan.

I think your overreacting a little bit.

My wife likes to watch those homebuyer shows on TV. A lot of the couples save up 10k, 15k, maybe even 20k to buy a $200,000 home.

If someone can save up $20 in 5 or 6 years, why not save up $100,000 in 15 - 20 years and pay cash. The problem is, not a lot of people have that kind of discipline. They get $1,000 in the bank, and they spend it on a new TV.

If someone has the discipline to save money, why go through a bank.
 

ShawnD1

Lifer
May 24, 2003
15,987
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Even then you'd be better off paying 5% down and keeping the other 15% in the bank for a rainy day.
Actually that is my current plan. If shit happens like company goes under and I need to get a new job or one that pays less, there's always that Plan B money. It increases the cost of borrowing, but it's a lot safer. I like safe.



Condos are the most stupid thing in the world. They always have insane fees. Not only that, but the idea of owning a piece of a large structure and therefore not having full control strikes me as ridiculous.
But you never need to fix anything and the heat and water are both free at my friend's condo. I don't need to tell you how insanely expensive water and heat are. My parents pay about $200/month just for heat and water in their moderate size bungalow. This past winter I had to help my dad get snow off the roof because it tends to melt in such a way that it fucks up the roof and can sometimes cause roof collapse. A year before that I had to help him put new shingles on the garage. He also bought a new furnace this year because the old one fucked up. You don't need to deal with any of that in a condo because that's what the condo fees are paying for.
 

Throckmorton

Lifer
Aug 23, 2007
16,829
3
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I think your overreacting a little bit.

My wife likes to watch those homebuyer shows on TV. A lot of the couples save up 10k, 15k, maybe even 20k to buy a $200,000 home.

If someone can save up $20 in 5 or 6 years, why not save up $100,000 in 15 - 20 years and pay cash. The problem is, not a lot of people have that kind of discipline. They get $1,000 in the bank, and they spend it on a new TV.

If someone has the discipline to save money, why go through a bank.


I thought you were being sarcastic...

You'd need to save more than $100k though. People I know in Houston are right now buying houses for $150k in bad neighborhoods, $200-300k in good neighborhoods. Houses here on Maui are $500k or $700k average-- I can't find a definite number.
 

IGBT

Lifer
Jul 16, 2001
17,960
140
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Basically you're saying we should force people to pay tens of thousands of dollars to apartment landlords for an extra decade in order to satisfy some moralist ideals of "responsibility".


yes. responsibility is learned and earned. Only then will the bounty be appreciated.
 

Doppel

Lifer
Feb 5, 2011
13,306
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Even then you'd be better off paying 5% down and keeping the other 15% in the bank for a rainy day.

Condos are the most stupid thing in the world. They always have insane fees. Not only that, but the idea of owning a piece of a large structure and therefore not having full control strikes me as ridiculous.
People get them because then they are "not throwing away money in rent", I guess. I think they suck. It's like an apartment without the ability to get out of dodge at any time. And if it's not a big one and the roof needs replacing you all get to go dibs on it, no fun there, either.
I think your overreacting a little bit.

My wife likes to watch those homebuyer shows on TV. A lot of the couples save up 10k, 15k, maybe even 20k to buy a $200,000 home.

If someone can save up $20 in 5 or 6 years, why not save up $100,000 in 15 - 20 years and pay cash. The problem is, not a lot of people have that kind of discipline. They get $1,000 in the bank, and they spend it on a new TV.

If someone has the discipline to save money, why go through a bank.
There is no NEED to save up money for a house. It gains nobody anything. It is not a consumer item like a vacation. You have to pay to live somewhere, there's no sin in paying as you go, which is what a mortgage does. I watch those homebuyer shows, too. Most of the couples seem unable to even come up with closing fee and build it into the loan.
 

senseamp

Lifer
Feb 5, 2006
35,787
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Sounds like common sense to me. Those of us who have 20% to put down are tired of highly leveraged losers driving up home prices.
 

Theb

Diamond Member
Feb 28, 2006
3,533
9
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This says it would not effect FHA, so 3.5% down is still possible. These are very popular loans right now.
I think that's reasonable. 3.5% or 5% + PMI. It shows that the buyer is capable of managing/saving money. Not everyone can save and it's skill that homeowners need in case they need a new roof, or the furnace breaks.

I know someone that bought a house with 3.5% down, but they also financed the down payment and closing costs on a separate loan. This was back in 2006. They did manage to hang on to the house until fairly recently, but living paycheck to paycheck just doesn't work with home ownership.
 

Throckmorton

Lifer
Aug 23, 2007
16,829
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Sounds like common sense to me. Those of us who have 20% to put down are tired of highly leveraged losers driving up home prices.

So that's what this is really about. People with higher incomes wanting lower prices for housing. Sounds like class warfare to me.
 

Throckmorton

Lifer
Aug 23, 2007
16,829
3
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I think that's reasonable. 3.5% or 5% + PMI. It shows that the buyer is capable of managing/saving money. Not everyone can save and it's skill that homeowners need in case they need a new roof, or the furnace breaks.

I know someone that bought a house with 3.5% down, but they also financed the down payment and closing costs on a separate loan. This was back in 2006. They did manage to hang on to the house until fairly recently, but living paycheck to paycheck just doesn't work with home ownership.
If you can save a 5% downpayment while renting, you can save while owning.
 

Doppel

Lifer
Feb 5, 2011
13,306
3
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If you can save a 5% downpayment while renting, you can save while owning.
If you can't while renting you probably can't while owning :)

I think 5% is very fair, maybe 10%. 20% is not necessary and there should be exceptions. Exceptions include strong income to debt ratio (e.g. just got out of residency and you're bringing in big bank as an MD). Also you probably should have to show you have a cash reserve.
 

Theb

Diamond Member
Feb 28, 2006
3,533
9
76
I think your overreacting a little bit.

My wife likes to watch those homebuyer shows on TV. A lot of the couples save up 10k, 15k, maybe even 20k to buy a $200,000 home.

If someone can save up $20 in 5 or 6 years, why not save up $100,000 in 15 - 20 years and pay cash. The problem is, not a lot of people have that kind of discipline. They get $1,000 in the bank, and they spend it on a new TV.

If someone has the discipline to save money, why go through a bank.

Some of us wanted our children to grow up in our home, rather than growing up in a rental then moving into our permanent home a few years before they move out. A childhood home can feel like a member of the family.
 

HendrixFan

Diamond Member
Oct 18, 2001
4,646
0
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Am I reading the article wrong? It seems that it is saying for the best rates you need to put at least 20% down, which makes sense. If banks weren't bundling up mortgages then they would charge higher rates (more risk) for those that put less money down.

Median home values are historically about three times the median household income. In 2010, median income was $44k and median home value was $240k.

That is not sustainable, and pushing for fairly sized down payments for homes will drive values down to levels that match income. Or we can inflate the dollar so that income goes "up" while home values stay flat so it can catch up, which seems like what might be going on right now.
 

Craig234

Lifer
May 1, 2006
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Houses are a lot cheaper when Wall Street isn't extracting trillions out of the 'housing market' that have to be paid ultimately by homeowners.
 

senseamp

Lifer
Feb 5, 2006
35,787
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So that's what this is really about. People with higher incomes wanting lower prices for housing. Sounds like class warfare to me.

Higher incomes don't have a problem buying a house. It's the responsible middle income savers who need housing prices to come down from levels that are sustained only by easy credit. Once those prices come down, a responsible middle class person should be able to save up enough for a downpayment on these lower priced houses. If you can't save up 20% for downpayment by the time you need to buy a house, you are not responsible enough to own one, and should not be in the market bidding up prices with other people's money, making it harder for those who are responsible enough to buy a house.
 

Texashiker

Lifer
Dec 18, 2010
18,811
197
106
I thought you were being sarcastic...

No


Some of us wanted our children to grow up in our home, rather than growing up in a rental .

I can respect that.

~~~~~~~~~~~~~~~~~

I totally agree with having to have 15%, 20%, 25% down to buy a home. Too many house flippers buy homes on credit, nothing down, drive up the price in hopes of a quick profit.

My personal opinion - house flippers helped drive up prices, to the point where an average middle class family can not afford a home.

If its the persons first home, lower the down payment requirements.

If the person already owns 2, 3 or 4 homes, drive up the down payment to 50%.
 

Darwin333

Lifer
Dec 11, 2006
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The median income in 2009 was $50k. On that income how many years do you think it takes to save a 20% down payment for a $300k house, while paying rent? In that time how much money is lost permanently to rent?

In the past year I've spent $11,700 on rent... Let's say it takes 10 years to save $60k. 10 years at my current rent of $850 comes out to $102,000. That's $102k of value lost forever... Far more than the interest difference between a 20% and a 5% down payment.
With a 30 year 5% interest mortgage on $300k and 20% down payment you pay $223,813 in interest.
With a 30 year 5% interest mortgage on $300k and 5% down payment you pay $253,310 in interest.

How does it make financial sense to pay such a big down payment? You spend $30k less on interest, but $102k more on rent, and your home ownership is delayed by 10 years.

Edit: Forgot to consider the time to save the 5% down payment. That adds up to $25k in rent. So for the 20% mortgage you blow $75k more on rent to save $30k on interest and you wait 10 years instead of 2.5 years.

That is only half of the equation though.

How does it make financial sense for someone to loan you $285K for a $300K house with their only (generally speaking) recourse being the underlying asset when it is very plausible that asset could decline by more than 5% in the near future? The only other option would be to raise interest rates which significantly reduces the value of house you can afford?

And then there is this tiny issue of a home being primarily a place to live and not primarily an investment.
 

Throckmorton

Lifer
Aug 23, 2007
16,829
3
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If you can't while renting you probably can't while owning :)

I think 5% is very fair, maybe 10%. 20% is not necessary and there should be exceptions. Exceptions include strong income to debt ratio (e.g. just got out of residency and you're bringing in big bank as an MD). Also you probably should have to show you have a cash reserve.

But my point is it takes time to save more, and during that time you're wasting money on rent when you could be putting it toward the the mortgage.

I realize this forum has a lot of engineers and the like making 6 figures, and for them it's nothing to save up $60k, but for someone at median income, saving money isn't just a matter of choosing not to buy a BMW. It takes time, and that time is better spent paying toward the principle rather than saving pennies for a down payment while renting.
 
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Throckmorton

Lifer
Aug 23, 2007
16,829
3
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That is only half of the equation though.

How does it make financial sense for someone to loan you $285K for a $300K house with their only (generally speaking) recourse being the underlying asset when it is very plausible that asset could decline by more than 5% in the near future? The only other option would be to raise interest rates which significantly reduces the value of house you can afford?

And then there is this tiny issue of a home being primarily a place to live and not primarily an investment.

We're talking about the government stepping in and TELLING the banks what makes sense.