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Old 02-03-2009, 06:40 AM
 
3,576 posts, read 5,903,599 times
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I've been doing a lot of reading lately. Even on these forums, everyone is pushing FHA loans or other very low downpayment options for obtaining a home with very little money down.

I'm starting to get stick to my stomach. If you only put down 3-5% down on a home, what if you lose your job or get sick, there's no way out if you have very little cash reserves left.

So why are lenders pushing for these government back loans? Is it just an easy way to push a loan through and collect commission because the private lenders want much more money down for a home?

The way I see it, the government is will on the hook for billions more on loans if these people who took out FHA loans default.

I'm all for homeownership and I know why FHA loans were created (to help lower income people afford homes). But the government needs to tighten up their own standards or history is just going to repeat itself.
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Old 02-03-2009, 07:10 AM
 
Location: Loving life in Gaylord!
4,108 posts, read 7,556,582 times
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Yes, but very few people can afford to save money nowadays. With the cost of everything going up and income staying the same ...who can save all that money?? Most people (like me) bought a home hoping to get enough equity to pay the downpayment on another home when they moved. I bought my home 6 yrs ago for 109,000, and remodeled most myself. It should be worth over $120,000 I would think, and I owe $99,000 We wanted to move next year, but now will make nothing on ours, so we cannot put a down payment on a newer house. I dont see how the average joe can possibly make enough money these days to save $30-$40,000 to me its almost impossible. So, how can anyone buy a house if you are thinking everyone should put so much down?
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Old 02-03-2009, 08:41 AM
 
Location: Atlanta, GA
331 posts, read 623,041 times
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let not your heart be troubled....

In my opinion, an abbreviated opinion, the reason we got into this mess is when non-mortgage folks without years of experience in credit, income, and asset underwriting and risk performance came in and made up these mortgage product offerings - i.e. the sub-prime products - the people who came up with these guidelines were not underwriters or anybody with a mortgage underwriting background...

With that being said, to your point, the percentage of FHA mortgages out of total loan origination has EXPLODED....and right now it will take time for the increased Underwriting standards on the conventional side to take hold - meaning improved loan performance - fewer defaults. That side of the business needs to heel and banks need to get back to profitability...

Back to FHA, FHA standards have not changed as far as qualifications - paystubs, W-2's, bank statements, debt-to-income ratios, credit history, risk analysis, etc....this is how an underwriter determines if someone can repay a mortgage-----mortgage people approving mortgages...where it belongs...

People default on mortgages for the same reason they have always defaulted on mortgages - loss of an income, loss of a spouse, MAJOR medical problems.....this is more common now, but is the tried and true reason behind a default...

So....this is not an "Easy" way to collect a commission, this is mortgage underwriting basics with guidelines created by mortgage underwriters. The standards do not need to be tightened, they are based on years and years of data collection and actuary data....lenders are not pushing these loans, people still need mortgages, first time buyers, lower payments etc...these people are now being put into loans they qualify for...you should be relieved, not scared...

The mortgage industry will be fine once everyone who has no mortgage credit background gets out of our way and no more Wall Street geniuses create any new programs based on derivative based bond portfolios with risk priced pricing and quick profits made one time in the secondary market.

my 2 cents...
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Old 02-03-2009, 08:44 AM
 
1,788 posts, read 4,147,913 times
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Quote:
Originally Posted by aneftp View Post
I've been doing a lot of reading lately. Even on these forums, everyone is pushing FHA loans or other very low downpayment options for obtaining a home with very little money down.

I'm starting to get stick to my stomach. If you only put down 3-5% down on a home, what if you lose your job or get sick, there's no way out if you have very little cash reserves left.
In my case, I plan to buy property this year and I will be getting an FHA loan with as little down as possible. Why? Because by putting the minimum amount down, I actually KEEP some reserves in the bank for emergencies; they're not all going to be tied up in the house.

So perhaps they're putting small amounts down in order to keep a safety net, hmm?
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Old 02-03-2009, 01:00 PM
 
1,059 posts, read 1,636,264 times
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I agree with you, aneftp. We should all have to put at least 10% down on a home, 20% being better.

To michmoldman: Saving can be a little as $50 a month. You get monthly compound interest and it accumulates in the long run. People make up too many excuses not to save, yet still spend for things they don't need.

As hard as it to save, especially for a first home since it's easier to upgrade, it is a NEED people have to do.
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Old 02-03-2009, 01:09 PM
 
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From my understanding FHA would help more people to become first time owners. Most property bought would be starter homes or condos. The people selling the starters can then upgrade to a bigger home helping the housing market.
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Old 02-03-2009, 04:26 PM
 
3,576 posts, read 5,903,599 times
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Quote:
Originally Posted by NYSinger View Post
I agree with you, aneftp. We should all have to put at least 10% down on a home, 20% being better.

To michmoldman: Saving can be a little as $50 a month. You get monthly compound interest and it accumulates in the long run. People make up too many excuses not to save, yet still spend for things they don't need.

As hard as it to save, especially for a first home since it's easier to upgrade, it is a NEED people have to do.
Thanks for getting my point.

I'm just a little concerned where the FHA loans will be headed next since so many people are going the FHA route. I believe in 2008 35% of all loans were FHA related. Compared to 3% in 2005.

If you put so little money down and the housing market is going to be "flat" the next 5 years, most of what you put into your mortgage payments will be applied to interest, PMI, RE taxes, insurance first and very little applied to the principal .

So if the housing market were to stabilize and appreciate the normal 1-3% rate (if that), that leaves very little room for emergencies (either lost of jobs/health related/ or even for unexpected major home repairs (replace roof). And if people need to sale their homes in these situations, how can they cover their expenses if there was very little real money equity actually put in. (not phantom home gains).

I'm just so afraid all these government back FHA loans will backfire in the taxpayers face in these tough economic times. People need to save, save, save. So all these first-time homebuyers with FHA loans will have very little equity in their homes even after 3 years of homeownership.

How are they going to "move up" into a larger home unless they save because we cannot depend on those home appreciations (even modest ones) for the very near future.
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Old 02-03-2009, 05:11 PM
 
Location: central, between Pepe's Tacos and Roberto's
2,086 posts, read 6,097,275 times
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Quote:
Originally Posted by aneftp View Post
Thanks for getting my point.

I'm just a little concerned where the FHA loans will be headed next since so many people are going the FHA route. I believe in 2008 35% of all loans were FHA related. Compared to 3% in 2005.
In 2005 subprime loans were being widely originated, eliminating much of the need for FHA loans. Of course subprime underwriting standards were extremely lax and we see where that has gotten us. For what it is worth, between 1990 and 2000 FHA made up around 15% of all originations, and the average 4 year default rate on FHA mortgages originated between 1998 and 2000 was 3.37% for those with 96% LTV or greater.

Quote:
Originally Posted by aneftp View Post
If you put so little money down and the housing market is going to be "flat" the next 5 years, most of what you put into your mortgage payments will be applied to interest, PMI, RE taxes, insurance first and very little applied to the principal .
This is true of any mortgage with an amortization period of over 20 years. You can put 50% down and the majority of your payments for the first 10 years will be interest. Taxes and insurance are a seperate issue and should not be included in your analogy. They will be what they are regardless of amortization, loan to value, or rate.

Quote:
Originally Posted by aneftp View Post
So if the housing market were to stabilize and appreciate the normal 1-3% rate (if that), that leaves very little room for emergencies (either lost of jobs/health related/ or even for unexpected major home repairs (replace roof). And if people need to sale their homes in these situations, how can they cover their expenses if there was very little real money equity actually put in. (not phantom home gains).
I can't say I disagree with you on this. I would like to see FHA institute some type of asset reserve requirement. However, as some other posters mentioned they are going with FHA so they can have some reserves as opposed to using up all of their liquid assets as a down payment.

Quote:
Originally Posted by aneftp View Post
I'm just so afraid all these government back FHA loans will backfire in the taxpayers face in these tough economic times. People need to save, save, save. So all these first-time homebuyers with FHA loans will have very little equity in their homes even after 3 years of homeownership.

How are they going to "move up" into a larger home unless they save because we cannot depend on those home appreciations (even modest ones) for the very near future.
Anybody that is looking at homeownership as a short term investment right now deserves to lose their shirt. That is a big part of the reason that we are where we are now. Homeownership, first and foremost, is a filling of the need of shelter. If one can fill that need for shelter by purchasing rather than renting, and the bottom line is similar or better by buying vs renting then I don't see the harm. As a matter of fact, if you can buy a home for the same monthly outlay that you can rent a similar one for, you will actually come out ahead once you factor in tax benefits.

There was a time when people bought homes with the intent of paying off their mortgage as opposed to moving every 5 years.
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Old 02-03-2009, 05:37 PM
 
Location: Baltimore
1,802 posts, read 7,067,536 times
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I don't necessarily agree that the lack of a down payment is the problem. I bought my house with a no downpayment FHA loan 15 years ago. Otherwise I probably would never have been able to buy. I lived paycheck to paycheck, and my rent was actually higher than what my mortgage payment ended up being. I bought a house I could afford with a fixed rate loan. This wasn't the cause of the problems in the mortgage industry. It was the adjustable rate loans, or a second loan on the side to finance a chunk of the price, or all of those other creative schemes that were more recently being peddled, that allowed buyers to qualify for loans way out of their means.

I know a lot of first time buyers who were lucky enough to have a family member give them the downpayment. Why does that make them a better risk than someone like me?
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Old 02-03-2009, 07:07 PM
 
Location: SE Michigan
1,213 posts, read 4,238,988 times
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Quote:
Originally Posted by NYSinger View Post
I agree with you, aneftp. We should all have to put at least 10% down on a home, 20% being better.

To michmoldman: Saving can be a little as $50 a month. You get monthly compound interest and it accumulates in the long run. People make up too many excuses not to save, yet still spend for things they don't need.

As hard as it to save, especially for a first home since it's easier to upgrade, it is a NEED people have to do.
$50 per month in one year is 600 plus 5% interest maybe another $100. So in one year, 700.

The average house cost about $160,000 ( unless you get a foreclosed, then you will need several thousand for unexpected and expected costs).

10% is about $16,000. It would take you close to 17 years to save up that much.

by the time you save that much money... houses will cost much much more than $160,000. You will never catch up. I guess, things will get to the way it used to be... the rich own homes... everyone else rented apartments. REmember Lucy and Ricky? Ethel and Fred? They all lived in rentals.
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