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I don't know if it's still the case, but FHA was self-sufficient, if not profitable for the gov't. 10 yrs. ago. It's not so much taxpayer money that insures those loans, but rather the upfront and monthly MIP every FHA borrower pays. It's mortgage insurance. I'm sure they're in for hard times in the future because of having to refi subprime deadbeats into FHA, who never would have qualified previously. But FHA is one of those few gov't. programs that has actually been run pretty well, helped a lot of folks and not been a boondoggle - this coming from a rabid, right-wing gun nut.
During the last 10 years housing prices have been going up more than any time in history. Under this environment its very easy to be "self-sufficient" because even if the borrower defaults you can take back the home and sell it for enough to cover the loan + plus associated foreclosure costs.
But it is now obvious that these sorts of programs not only aren't self-sufficient but they tend to prop up real estate prices negating their whole of affordable housing. The FHA now requires massive government funds just to function because it made a bunch of crappy loans. Similarly Frannie Mae and Freddie Mac (which are government sponsored) would've collapsed if not for bailout money.
Its hard to consider an organization that needs multiple billions of dollars in bailout cash "self-sufficient".
So you may be right-wing but you aren't a fiscal conservative. This is government meddling at its finest and it now is going to cost tax payers billions and its unintended consequences has negated any benefit of the program.
Well, I didn't know it had gotten that way and I surely wouldn't support subsidizing that for which private sector alternatives can easily be found. Before subprime existed and before Fannie and Freddie had their 97% programs, FHA was the only game in town for such low money down. And in those days, they weren't in need of constant fed. dollars.
....FHA was the only game in town for such low money down. And in those days, they weren't in need of constant fed. dollars.
The FHA was created during the depression, but for decades it hasn't used fed dollars. Over the last decade their loan portfolios got a lot worse. Now its being used in much the same way it was used in the depression (and will be subsidized by tax payers), namely to increase the size of the mortgage market due to declines in private lending.
Regardless of one feels about such programs. Helping low income, handicapped, etc families is one thing. Helping someone with a 100k+ income is altogether different. At some point if people aren't willing to save up a down payment and improve their credit scores.....they need to pay for those choices.
Thanks Stan and Humanoid. I agree with your assessments 100%.
But I want to cry. In my area in the lovely state of Maryland, many families make around this seemingly-high income of 100K, but almost all of the houses STILL cost from the 300's to the Millions. I was wondering who in the &^%$ was still paying those prices, and now I know.
I suspect that this guy will get a loan, but that makes me sad because it seems that it does not pay to be prudent, and someone will continue to prop up these ridiculous home prices. I remember when I was little a 1/2 a million dollar house was like a MANSION. Wow, could I really live in a house that expensive! Now that's what people want for a normal single-family home on a 1/4 acre lot. WTF
BTW, OP, kudos for saving the 5% down. That's nothing to sneeze at, and I think you're responsible. The sad thing is that 5% of almost 600 GRAND would be 10% of 300K, which is what a nice house should cost. And even with that price, if you have a family or decide to further your education etc, you will still feel Stretched.
Good luck. I am sure you can get the loan, but you deserve to have SOME security and peace of mind. Maybe you can try to talk to the seller and pretend you can't get financing and see if they will lower the price...
Because people have being doing X for years does not imply that X is financially good. Buying a home with a low down payment is risky for both the lender and the borrower. What if you need to sell in a few years because a job transfer? If the market has gone down just a little bit you are going to be underwater.
The current market demonstrates nicely why low down payments are no good for either party.
USDA financing has been doing 100% financing as long as I know of, their default rates are quite low. Now they aren't helping the masses buy in Los Angeles, Las Vegas & Miami, but it goes to show you that lending to fiscally conservative folk (which I've noticed most people buying in rural areas tend to be) with no down payment can still work out for everyone. One thing that USDA does limit is the income a household can make for the program based on the county one is purchasing in, one item that I think FHA should have in place now.
In your example though, where someone purchases with a small down payment vs. a large one, the person who put the small down in would have the reserves leftover that the individual who put the large down payment would not have anymore... and that person who put less money down has made interest/returns off their down payment they did not part with as well. Being underwater or not doesn't determine if a low down payment loan is risky for the homeowner, it's not having the capability of selling the house which is the risk. If you don't have enough cash on hand & equity in the property to sell it - it doesn't matter if you put 0% down or 50% down. Now if you are buying a home with 5-10% down, and you have nothing leftover, whether it's a $50k home or a $500k home, that is another problem in itself.
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