anyone putting less than 10% down is "basically underwater" as soon as deal closes (PMI, loans)

[aneftp]

I just don't get the housing industry, government officials, regulators.

I'm sure the worst of the housing collapse is behind us (although there may be some more minor price drops in the future but nothing like we've seen the past 2 years). Housing could go down 5-10% more...but nothing like 30-50% price drops in some parts of Nevada, Arizona, Florida, boonies in California like Stockton.

But why do government officials still allow FHA/VA loans with such low downpayments? Why do even private lenders still lend to people with less than 10% down? Yeah, I know there's PMI...but like AGI learned....no matter what type of insurance you offer, if you have a total collapse, the insurance companies can't cover their losses and will go down also.

My thinking is really simple.

You buy a house for "X" amount. Closing costs (in normal situations where the sellers aren't giving credit) costs 1-3% for the buyers. In order to resell the home, it will cost the sellers 5-6% real estate commission PLUS 1-2% in seller costing costs (transfer/state/stamps taxes) in most states.

So with buying/reselling real estate transactions, the homeowner is out about 10%.

What do you guys/gals think?

If the industry really wants to prevent another collapse, they need to return to the past when our parents saved enough to put down 20%. It tough to save that much and I understand that. But I feel like we live in such an entitlement world where if we want something, we find creative/risky ways to obtain it.

[chet everett]

I agree that more buyers should have more skin in the game. I do not know how to get there.

The reality is there are LOTS of buyers that will NOT be underwater IF they do not agree to a price that is SIMPLY TOO HIGH. Further if they buy a place that is under-valued due to lack of updates and THEN wisely do cost effective upgrades they CAN and WILL immediately increase their equity. So long as they do not tap into this equity to finance other non-increasing assets/ expense they OUGHT to have a huge incentive to help contribute to stable / increasing values.

[homeowner35]

Guys, we really need to change how we view real estate. Real estate is a LONG TERM INVESTMENT. Each person that buys will be underwater if they sell their home in less than 5 years. This was true before the bubble. If I sold my home a year after I bought it, I would have had to bring money to closing. Don't buy if you are not willing to live in the property for 7-10 years. The bubble was a moment in our history. It is over and people need to accept it. Buy the place that suits your needs for the best possible price and plant roots. Overtime, your home will work for you. This is the way it has been done for decades. Remember, equity builds each time you make a mortgage payment and the annual tax deduction makes a difference.

[KellyJay07]

I disagree, we will be in our home long term and it will be a great investment. Also it doesn't hurt that our house appraised for 13k more that what we purchased it for! Guess you just don't know til you are in those shoes.

[fumanchu41]

Actually FHA licensed appraisers are extremely conservative in their appraisal of the properties. They also take into consideration short sales and REO's as part of there evaluation of a subject property. This is something that others do not take into account. If the appraisal comes in less than offer price, FHA won't proceed with the process. They are actually a pain in the butt to deal with. So everyone rest assure. There is also more stringent requirements these days to even get a loan. Before they were giving it away like candy. There should be a balance. Also matters what part of the country you're in, as to how fast the appreciation will rise. So real estate in my opinion can either be a long term investment or short term. Works either way.

Besides, you make money on the buy not the sale. Never purchase on emotions. It'll kill you every time.

[cleasach]

I think the OP has merit but also think that there is too much thinking out there that people without 20 percent are all low wage earners who will never be able to keep up the payments.

Case in point: me. I live in NY and closing costs on a house or condo are about 6 percent of the purchase price. So a $300k condo (if you can find one at that price in a desired area) you need $18k for closing, $60k for a down payment, reserves in the bank and moving costs.

I could easily swing a $2500. a month mortgage payment, am secure in my job, but am older and finding a job in another part of the country would be difficult to do, and I grew up where I live/work and want to stay here. I live in a working class area that went nuts with speculators buying up all the units preconstruction, doubling the price and reselling. There are dozens of empty condos in my area listed for $429k for a 2 bedroom. These units have been listed for over 2 years now and many 6-8 unit complexes sit vacant.

In any case, what I do not have is the lump sum payment to get into a house or condo. I probably never will have the kind of cash that I referenced above. We had to pay the nursing home costs of an elderly relative for a lot of years and that was a huge monthly bite. The relative later passed away and we were able to start accumulating money but we started late and there's only so much we can put away after bills are paid.

I also have no intention of buying and then selling it later. I will die in whatever I buy. I think in my circumstances the ability to put less than 20 percent down is my only ticket to home ownership.

I save what I can but will be elderly when I accumulate that kind of money. I have to believe there are a lot more people out there like myself who could manage the monthly payments very easily but just don't have the huge pool of cash needed to get in the door.

[Goodpasture]

I actually think quite a bit different. Right now we are seeing a market where sellers are scared and there are lots of foreclosures. Consequently the market is artificially low today just as it was artificially high a couple of years ago. I think in many of the more volatile markets you will see a 10%-15% increase in "value" in a few short years. I think it may be a decade or more before inflation increases values to a point where houses are back to where they were three years ago, but I think they will be significantly higher in three years than they are now. In many markets this is the opportune time to purchase, and do so in excess of 90% LTV. The only caveat is to not bank on income that may not be available to pay for it. People are still losing jobs.

[Annemieke Roell]

Originally Posted by fumanchu41

Actually FHA licensed appraisers are extremely conservative in their appraisal of the properties. They also take into consideration short sales and REO's as part of there evaluation of a subject property.

Actually, as an FHA approved appraiser, I can tell you that it is unethical as well as illegal for ANY appraiser to value a property anything but in an objective manner.

In fact, UNDERvaluing (being "conservative") is just as bad as OVERvaluing and any appraiser who does either one of these ought to return his/her license back to the state.

And the only time we consider REOs and short sales is if this is the market for the Subject. In other words, if there is a small percentage of foreclosures in a Subject are this does not automatically mean this is the market trend and probably should not be used.

[Tek_Freek]

We have never, and will never put down less than 20%. We are financially responsible adults.

[Copanut]

There's nothing wrong with a small down payment. My first property was FHA with 3% down. Never missed a payment and recently sold it after 20 years. If someone is credit worthy I don't see a problem at all. Now, if you're talking about irresponsible people with lousy credit history, then 20% makes sense.