Home buying rules.

[HakunaMatata]

Oldhack-

I definitely wasn't implying that people should be prevented from home ownership if they don't meet the aforementioned standards (like you, I don't regard these as "rules"). You're situation exemplies such. It sounds like you've made an excellent decision and you have long-term projections. I love your OPM equity philosophy...I wish I was in a position to follow suit!

I suppose my questioning pertains to first-time buyers moreso than those "trapped" in underwater properties. It seems to me that 20% shouldn't be as difficult to achieve when compared to the glorious "bubble" days. Of course, if these potential buyers are in rental situations, I imagine this may be a reason why 20% down could be problematic. In my area, rent has not decreased dramatically which could make saving for a purchase difficult.

I'm currently considering foreclosure. Rent in my area will actually cost more than my mortgage. My big consideration is home repairs. When repairs are factored into my equation, renting is a more cost-effective option.

[blankslate]

As a person who was working in escrow during the peak of the housing boom, I saw things on both sides that caused this crisis. There were people who didn't care about the terms of the loans they were signing. I would try to explain and they told me to just show them where to sign and shut up. I couldn't believe the terms of some of these loans and how any lender in their right mind thought they would be successful with ARM and Balloon mortgages. They also threw in pre-payoff penalties to the tune of $20-60k if these people were to refinance. I tried to warn a lot of people what they were signing for but they simply did not want to hear it. They wanted to buy and refi and they wanted it now.

The agents and brokers were just as bad. There is such a thing as predatory lending. They would call a homeowner and ask if they wanted to refi their home and without ever meeting them or getting a solid "yes" they put their homes into escrow. I had one agent call me a c*** because my notary called me from the home of an 87 year old where she was sent to get loan docs signed and told me this woman had no idea what was going on. She never met with anyone for a refi. She'd once gotten a phone call from a "solicitor" asking her if she wanted to refinance her loan and she said she'd think about it. I told the notary to pack up and leave.

I only lasted a year in that field. I couldn't keep going on because I knew how seedy it was. All of this fabulous home buying advice should've been done during that boom.

Sigferl I will agree with you (shocking!) that this came from the middle class trying to live like the upper class. People felt entitlement to things they could not afford. It may have been fortunate for me as a single mom that I never had good enough credit to live out of my means and have always been a cash only person. While everyone was living on credit and prices for basic living costs skyrocketed I sold the few things I had a value and there were many months that my daughter and I lived on rice even though I was working two jobs. Now things are leveling out. Prices are coming down to what people who live on cash can afford. I can fill my refrigerator and gas tank without worrying. When the time comes to finally buy my first home I will be doing it with a downpayment and searching until I find a fixed rate loan without a huge pre-payoff penalty should interest rates come down again.

[oldhack]

...When the time comes to finally buy my first home I will be doing it with a downpayment and searching until I find a fixed rate loan without a huge pre-payoff penalty should interest rates come down again.

I respect that kind of analysis, blankslate, but I should note that an FHA loan -- which I finalized AT 5.5%! -- DOES NOT CARRY A PRE-PAYMENT PENALTY! Even at a 3.5% down payment!
I can, and will, service my 30-year mortgage in 15 years or less, because I'm a 50-something, and I want to retire at a less-then-geriatric age without a house payment. The 30-year, monthly payment simply allows me some wiggle room for the unforseen emergency when extra principal is not the most pressing target for my monthly cash outlay.
It may be that today is a Dickensian "best of times" for those who legitimately have the wherewithal to undertake a mortgage. Well, okay, I can stand being lucky instead of good!
But, truly, in today's market, I see putting 20% down without a pressing financial reason for doing so, a waste of good investment capital. When the recession breaks, there will be a lot of depressed market segments with room to grow quickly (if we still have a market economy).
If you have borderline credit that you need to scaffold, you have to make a large downpayment. If you need some equity because you may have to turn over the property in a short time frame, you've got to do it. But, if you you can live in a house a good long time without worrying about its value, borrow OPM (other people's money) to effectively pay your rent while you invest your own cash in higher-yielding investments. The real estate market, in case you haven't heard, isn't going gangbusters right now.

[sigferl]

Thanks for your post oldhack. I have to respecively disagree completely. A 20% cash downpayment is always a good idea otherwise you are taking a large risk of losing your home.

How do you know that we are near the bottom of the mortgage crisis? How do you know there is 'room to grow quickly'?

I think the current mortgage crisis proves that the 20% cash downpayment is always a good idea and there is no way to perdict tomorrows returns. A house is a Home and not 'investment capital'. Please do not take risks when it comes to your home, there may not be Obama Bailouts next time.

God Bless America

But, truly, in today's market, I see putting 20% down without a pressing financial reason for doing so, a waste of good investment capital. When the recession breaks, there will be a lot of depressed market segments with room to grow quickly (if we still have a market economy).
If you have borderline credit that you need to scaffold, you have to make a large downpayment. If you need some equity because you may have to turn over the property in a short time frame, you've got to do it. But, if you you can live in a house a good long time without worrying about its value, borrow OPM (other people's money) to effectively pay your rent while you invest your own cash in higher-yielding investments. The real estate market, in case you haven't heard, isn't going gangbusters right now.

[OhioFiler]

Thanks for your post oldhack. I have to respecively disagree completely. A 20% cash downpayment is always a good idea otherwise you are taking a large risk of losing your home.

How do you know that we are near the bottom of the mortgage crisis? How do you know there is 'room to grow quickly'?

I think the current mortgage crisis proves that the 20% cash downpayment is always a good idea and there is no way to perdict tomorrows returns. A house is a Home and not 'investment capital'. Please do not take risks when it comes to your home, there may not be Obama Bailouts next time.

God Bless America

Given that in many markets home values have decreased by 40-50%, using your logic the minimum downpayment should be at least 50-60%.

[sigferl]

Thanks for your post OF. I am not sure I understand your statement but I do agree that the larger the downpayment the better.

I am just advocating following the old 20% downpayment rule. 20% of the price of the home you are buying.

Do you have any advice to prevent the next mortgage crisis?

A home is to important to risk losing by taking short cuts.

Vote Libertarian

Given that in many markets home values have decreased by 40-50%, using your logic the minimum downpayment should be at least 50-60%.

[OhioFiler]

Thanks for your post OF. I am not sure I understand your statement but I do agree that the larger the downpayment the better.

I am just advocating following the old 20% downpayment rule. 20% of the price of the home you are buying.

Do you have any advice to prevent the next mortgage crisis?

A home is to important to risk losing by taking short cuts.

Vote Libertarian

You mentioned before that putting 20% will allow one to retain equity in their home even if the value drops 15%. So I assume if the value was to drop 40% you would recommend a downpayment of at least 45%.

The next mortgage crisis can be prevented by getting the federal government out of the way. It was the liberal buffoons in Washington who decided homeownership is a right and forced the lenders to create the subprime lending market. The crooks at Fannie Mae and Freddie Mac also contributed a lot to the mess. Let the market dictate who can purchase a home and at what terms and there will never be another mortgage crisis.

Be certain of one thing. Whatever the intent of legislation put forth by liberals the actual outcome is almost always the complete opposite.

[DeadManCrawling]

Recent numbers from either NAR or Realtyrac show a greater than 50% default rate in the years 2011-2012. The next wave, if the prediction is correct, will be far bigger than what we have seen so far.

Scary stuff.

[junker]

look at all the folks that put a lot down on a house only to lose their 20 ormore percent down.. why??? would you put your life savings in something that now days is no more secure than going to the racetrack for your money..if you can get away with a low down payment and make the payments comfortablly and save your cash...in todays market and for the forseeable future more people than not are upside down on their house the greed of the bankers pushing arm loans is what started this mess...when i had my last house i was getting 3 to 4 calls a WEEK asking if i wanted to refi..and they all said...dont worry when the 2 year fixed is due i will refi you to a fixed loan...they even farmed out the calls to india or somewhere to call for armloans.....fha and va loans with no or low down are great...contract or low down is also great...siegerl is way off base on this one....as usual....

[sigferl]

Thanks for your post junker. I respectfully disagree completely. You are advocating doing nothing instead of taking prudent precautions to stay out of foreclosure.

If you can not follow simple rules, please do not buy a house, renting is a good alternative. Buying a house is not for everyone because it is a large financial risk, just like investing in the stock market is not for those that can not tolerate risk.

Banks did not force ARMs on anyone the same way car dealers do not force you to buy a cadiliac. I refinanced my home in 2003 and I told every bank I shopped at what I was shopping for.

Just because banks offer you something does not mean you should take it. Just say NO!

From what I see and hear, the mortgage crisis was mostly caused by materalistic people buying a house that was to large and not paying enough downpayment.

Freedom is not free.

look at all the folks that put a lot down on a house only to lose their 20 ormore percent down.. why??? would you put your life savings in something that now days is no more secure than going to the racetrack for your money..if you can get away with a low down payment and make the payments comfortablly and save your cash...in todays market and for the forseeable future more people than not are upside down on their house the greed of the bankers pushing arm loans is what started this mess...when i had my last house i was getting 3 to 4 calls a WEEK asking if i wanted to refi..and they all said...dont worry when the 2 year fixed is due i will refi you to a fixed loan...they even farmed out the calls to india or somewhere to call for armloans.....fha and va loans with no or low down are great...contract or low down is also great...siegerl is way off base on this one....as usual....

[sigferl]

Thanks for your post OF. Yes, if you have a crystal ball and you know the house is going to depreciate 40% when you sell it then you should put 40% downpayment or at least save the money by the time you sell to pay off the mortgage. But why would someone buy an asset that they know will depreciate?

OF, what is your solution to avoiding being underwater in a house? BK? Bailout? etc.

People should not buy a house if they can not afford it or understand it, renting is a good alternative for many people.

For example, my 75 year old mother knows nothing about computers and should not purchase one, but if she decides to buy a computer on her own then she should prepare to buy the wrong product and have to exchange/modify it until she gets the computer she needs. Otherwise, she can use the compter at the library or find/hire someone to buy the right compter. But, it is not Walmarts fault if she buys the wrong computer.

I do agree that the federal government is the cause of many problems but I disagree that they forced people to buy houses they could not afford.

Do unto others as you would have them do unto you.

You mentioned before that putting 20% will allow one to retain equity in their home even if the value drops 15%. So I assume if the value was to drop 40% you would recommend a downpayment of at least 45%.

The next mortgage crisis can be prevented by getting the federal government out of the way. It was the liberal buffoons in Washington who decided homeownership is a right and forced the lenders to create the subprime lending market. The crooks at Fannie Mae and Freddie Mac also contributed a lot to the mess. Let the market dictate who can purchase a home and at what terms and there will never be another mortgage crisis.

Be certain of one thing. Whatever the intent of legislation put forth by liberals the actual outcome is almost always the complete opposite.

[junker]

sieg...your idea of putting 20% down is absolutely the worst advice to potential homebuyers...expecially in todays market...it doesnt ensure anything except the bank has a little buffer zone before IT loses money...tell them to put as LITTLE down as possible..save YOUR money...you are essentially tlelling young people and Vets not to get fha or va loans that require no or little down....dont you think they deserve a house?? saving 20% in these times might be rough for some...but you must be forthe rich and big business as they are the ones that can easily afford the 20%....you want the poor folks to continue renting and pay high rents...as long as someone can pay the mortgage note easily...it doesnt matter what they put down payment....i guess libertarians are pro BIG BANKS.. and BUSINESS...put as little down as possible..and take your 20% to the race track.. you will have better odds of retaining it...

[hereforinfo]

You mentioned before that putting 20% will allow one to retain equity in their home even if the value drops 15%. So I assume if the value was to drop 40% you would recommend a downpayment of at least 45%.

The next mortgage crisis can be prevented by getting the federal government out of the way. It was the liberal buffoons in Washington who decided homeownership is a right and forced the lenders to create the subprime lending market. The crooks at Fannie Mae and Freddie Mac also contributed a lot to the mess. Let the market dictate who can purchase a home and at what terms and there will never be another mortgage crisis.

Be certain of one thing. Whatever the intent of legislation put forth by liberals the actual outcome is almost always the complete opposite.

Standing ovation!! I will add that even though that's how it all started, I think the flames were fanned by individuals living above their means. The government just paved the way for the unscrupulous lenders and irresponsible borrowers.

We put more than 20% cash down on our home. The value has dropped about 30% below what we paid so we are under water. Doesn't matter much, since we have no intention of selling anytime soon. I don't think larger down payments would have kept most people from being upside down; but I do think it would have prevented a lot more people from walking away. In Florida there were way too many speculators investing in new construction. They put 0 down and had no emotional investment in the properties, so when the market crashed before they could flip they were the first to walk, killing the values of surrounding homes. It's much easier to walk away when you don't have your own cash invested.

[sigferl]

Thanks for your post junker. I respectfully disagree completely. >20% cash downpayment is very good advice because:

1. We are talking about your home, not an investement, so everyone should take very prudent steps to ensure that your home is not lost for any financial reason.

2. 20% cash downpayment helps to ensure that you do not lose your home if your home temporarily decreases in value.

3. I want all veterans to get a VA loan by putting >20% cash downpayment just like everyone else. Just because VA/FHA/bank allows you to put less then 20%, do not do it. A salesmans job is to get you to buy something you do not need or is bigger then you need. Say NO to salesman.

Sorry, Libertarians are for freedom and personal responsibility, if you break your mortgage contract, get out of the house today. Most BK supporters want government to bail them out of hard times(excluding severe permanent medical disability).

God Bless America.

sieg...your idea of putting 20% down is absolutely the worst advice to potential homebuyers...expecially in todays market...it doesnt ensure anything except the bank has a little buffer zone before IT loses money...tell them to put as LITTLE down as possible..save YOUR money...you are essentially tlelling young people and Vets not to get fha or va loans that require no or little down....dont you think they deserve a house?? saving 20% in these times might be rough for some...but you must be forthe rich and big business as they are the ones that can easily afford the 20%....you want the poor folks to continue renting and pay high rents...as long as someone can pay the mortgage note easily...it doesnt matter what they put down payment....i guess libertarians are pro BIG BANKS.. and BUSINESS...put as little down as possible..and take your 20% to the race track.. you will have better odds of retaining it...

[sigferl]

Thanks for your post hi. I respectfully disagree with you completely. I totally disagree with this statement because it appears to contradict it self.

'I don't think larger down payments would have kept most people from being upside down'

From my understanding, the definition of 'upside down' means owing more than the house is worth. If you would have put 40% down then you would not be 'upside down' when the house dropped 30%.

1. The larger the downpayment the less likely to get 'upside down'.

2. The larger the downpayment the lower the monthly payment; therefore, it is easier to weather a financial crisis like this one.

Walking away is a horrible thing to do! You are breaking a solomn promise!

Please do not walk away from a house.
Please rent if you are capable of buying a house, irregardless what the real estate agent or bank says.

Freedom is not free.

Standing ovation!! I will add that even though that's how it all started, I think the flames were fanned by individuals living above their means. The government just paved the way for the unscrupulous lenders and irresponsible borrowers.

We put more than 20% cash down on our home. The value has dropped about 30% below what we paid so we are under water. Doesn't matter much, since we have no intention of selling anytime soon. I don't think larger down payments would have kept most people from being upside down; but I do think it would have prevented a lot more people from walking away. In Florida there were way too many speculators investing in new construction. They put 0 down and had no emotional investment in the properties, so when the market crashed before they could flip they were the first to walk, killing the values of surrounding homes. It's much easier to walk away when you don't have your own cash invested.