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For some people, like me, its a matter of simple timing. I was paying 1200 in rent and had about $10k in savings. I was in the market for a 230k home (average in my area for middle class home). I did the math and I would have spent about 30k in rent and lost out on about 10-15k in equity opportunity cost while saving up a down-payment. I also locked in at 3.2% interest and knew rates were on the upswing. I ALSO bought when housing was cheaper in my area, my neighbors are now selling for about 20k more than I paid.
So you cant paint broad strokes and say "If you cant afford 20% down then you cant afford a house!" For some people its just a numbers game. And btw Ive paid my mortgage on time for over two years....no default here.....
Once upon a time- oh, around 1980 - interest rates skyrocketed and many lenders were stuck holding low-rate mortgages when sellers handed over their assumable mortgages to buyers. Lenders did the logical thing going forward, all new mortgages were due on sale. It would be extremely unusual to find an assumable mortgage today.
FHA loans are assumable. You know, the low down payment loans? That was one of the selling points for us. Interest rates ARE going to rise, and an assumable loan will add value to our home if we ever have to sell.
There are two parties to a mortgage transaction. The bank makes no decision based on morals or ethics. If I were being foreclosed on with seventeen children and terminal cancer they wouldn't delay out of the goodness of their heart. Why should the borrower sabotage their entire financial future for an organisation which would never ever reciprocate?
They shouldn't sabotage anything. Instead, they should avoid the situation in the first place if possible. If this turns out to be impractical for whatever reason, then so be it.
In the interest of full disclosure, I probably am a radical on this issue, as I would sooner decide to not have kids than to default on a loan. If I owed $400k on a $200k house while still single, I would live on the couch, rent the rest out, take the bus to work, and pay it off the hard way. I would not default.
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Originally Posted by WildColonialGirl
Money to sell the house comes out of the borrower's pocket whether it's up front or when selling. You have a basic misunderstanding of how this works.
'A few short years of cheap living can set you up'. Oh, I see. You're in your late 50s or 60s, aren't you? No grad school, either, right?
Are you being sarcastic? I'm 28 and in grad school!!!
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Originally Posted by WildColonialGirl
This worked nicely back in the day, still works for kids who start an apprenticeship at 16 and buy an investment unit before they're 20. For the rest of the world, not so much. Take Swizzyficket upthread. She was able to get into the property ladder because she put 5% down straight out of college, so as values went up, so did her equity, creating a buffer between the size of house her family would need and the amount of money she'd have to pay. Had she waited another eight years until she had 20% she not only would have needed a bigger (more expensive) house, but the price of the house she'd bought would have gone up so that the 20% of its old price was no longer 20%, and she'd have to wait and save some more, while her family grew again and prices rose again.
Have we fallen back into the trap of thinking real estate always goes up, and never down?
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Originally Posted by WildColonialGirl
Have you heard the term "chasing the market"? This is like the buyer's version of that.
Tell me, how did your flatmates enjoy sharing a house with your kids?
My roommates have never had the slightest problem with my non-existent kids, not even once.
If you are an average American, some 20-25% of what you think of as your own hard-earned money actually comes directly or indirectly from government spending.
There was meanwhile no tax money involved in TARP or in any of the well-publicized Wall Street and other big-boy bailouts. The hard-and-fast connection between income and outlay that people see at the household level simply does not exist or operate in the case of the national government.
With how much the governments spend on roads and bridges alone, I would imagine it's close to 20-25% easily. We all benefit from them.....the idea of dirt roads is less than fun in my world. Even dirt roads - yes there are places with dirt roads still - they are maintained by the local government. They occasionally fill in the craters. The have to grade the roads from time to time. Oh and they have to create the road.
In the end, we all pay for crap we don't care about. There's nothing we can do to change that. What you care about, what I care about, what Bob cares about, what grandma cares about are all completely different. The government has to attempt to do the best it can for everybody.....now does that happen all the time? Probably not, but this place sure beats places like Iraq!
With how much the governments spend on roads and bridges alone, I would imagine it's close to 20-25% easily. We all benefit from them.....the idea of dirt roads is less than fun in my world. Even dirt roads - yes there are places with dirt roads still - they are maintained by the local government. They occasionally fill in the craters. The have to grade the roads from time to time. Oh and they have to create the road.
In the end, we all pay for crap we don't care about. There's nothing we can do to change that. What you care about, what I care about, what Bob cares about, what grandma cares about are all completely different. The government has to attempt to do the best it can for everybody.....now does that happen all the time? Probably not, but this place sure beats places like Iraq!
Technically, it's 100% (or very nearly so), not 20% or 25%. If you trace any given dollar in circulation back through all its transactions, it will have been spent by government at least once (when it was borrowed from the Fed). There might be a few dollars that are an exception, if the banks borrowed from the Fed, hence why I said "or very nearly so".
As a side note, most of the paper money has traces of illegal drugs on it, so one could make the same argument about drug dealers...
So if the question is "Are low down payments a good thing" the answer is yes, as long as people don't turn it into rental or lose them to foreclosures.
But no one has a crystal ball and can see into the future. We had no idea we would have a job change. Even since we relocated, the company has been purchased and everyone's job changed along with a 10%+ decrease in pay. We didn't see that coming. Now there's talks about relocating people....and I do not want to relocate! They'd pay for the relocation and take care of our house, but I don't want to go through all of that crap again. Relocating is a nightmare!
FHA loans are assumable. You know, the low down payment loans? That was one of the selling points for us. Interest rates ARE going to rise, and an assumable loan will add value to our home if we ever have to sell.
If the new borrower defaults, is the original borrower on the hook? And can the assumption occur even if the loan is underwater?
How can there be 'too much' rental property when 48% is precisely what the MARKET has produced? Do the people running the town think they know better than the private sector?
Renters have ZERO incentive to improve their homes unless they are guaranteed the right to enjoy the fruits of their effort. If landlords do not extend such guarantees, HowTF is it the renters' fault?
In the parts of town that are nothing but renters, the property values are decreasing. The properties aren't being maintained. This is why the town is greatly concerned. They don't want what was once a decent neighborhood to turn into the slums. Typically homeowners who reside in their homes do a significantly better job at maintaining it...even things like mowing the lawn after the neighborhood.
If values continue to decrease, the tax base will also decrease. Then cuts will have to be made to the entire town not just these particular neighborhoods.
Renters can do plenty to help themselves out and take pride in where they live. I know people who are supposed to mow their lawn and it's their lease. They'll mow it once every month or two.....you could have horses feed there! Not keeping junk outside or junk cars. Plenty of rental properties have tons of old crap outside. That doesn't mean there aren't any homes with resident owners doing the same thing.
I live in a high COL and I think way too many people use that as an excuse not to be responsible when it comes to purchasing a home. It is insane... and the more the general public is wiling to stretch and risk.. the higher the pricing of homes. They don't even build modest homes in my area anymore...
They should be renting.
If houses are expensive in your area, then rent is also going to be high. And there are plenty of areas where there aren't any rentals. I live in a neighborhood with absolutely no rentals. We're all single family homes.....old homes as well. This town is extremely strict on renting your property out. We're not zoned for it and they take you to court if you rent your house out. They have 5 court cases right now!
Excellent post^^^^^^^^^^^^ In today's day and age who the hell has more than 20% to put down. If you buy a 100k home, (which is nothing spectacular), that's 20k down. Who has that much money to put down, not very many
In my region, the only house you'd find for $100K would be in a drug neighborhood...and this is what it's like all over the country. Well, in Detroit they were selling houses for $5k, but it was pretty much just a shell in a horrific neighborhood. Maybe that's how everyone should live until we all can save 20% for a mortgage.
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