anyone putting less than 10% down is "basically underwater" as soon as deal closes (interest rate, foreclosure)

[Braunwyn]

I don't understand why putting less than 20% down is considered irresponsible. I was going to put down 10%, and for better or worse, my mortgage broker told me to keep my money and pay off my car. His reasoning was that if I threw what I owed into the house, I would no longer be paying interest on the car and would get a tax deduction on the debt. So, I put down 3% and paid off some debt and fixed up the house a bit. The sellers paid closing costs.

[bigcats]

You can't and that's why you need a significant downpayment in order to unload your home in a hurry.

It doesn't matter how much I put down, I would not be able to "unload my home in a hurry" around here, and yet this is the place I need to have my home for employment purposes. The best I could hope for if the unforeseen happened would be to rent it out.

Anyway, because I didn't put a lot down, I have a lot more in savings than I would have otherwise. I could pay the mortgage for a year if I had to.

There are all kinds of circumstances and I'm perfectly secure in my own. I'm nowhere near danger of foreclosure. So far my decision to buy with 3% down has been a great decision. Why would you assume that since I put 3% I "can't afford" to buy? Jeez, I paid the same in rent as I do on my mortgage payment. Guess I can't afford rent either. Guess I should be homeless.

[Braunwyn]

Originally Posted by bigcats

There are all kinds of circumstances and I'm perfectly secure in my own. I'm nowhere near danger of foreclosure. So far my decision to buy with 3% down has been a great decision. Why would you assume that since I put 3% I "can't afford" to buy? Jeez, I paid the same in rent as I do on my mortgage payment. Guess I can't afford rent either. Guess I should be homeless.

When I ran the numbers with my broker, the down payment didn't really affect my monthly payment. If it did, that would have been a motivator. Otherwise, why lose the 30-40k when it could be used else where? I say this with trepidation, tho, because I'm a new home owner.

[aneftp]

Originally Posted by bigcats

It doesn't matter how much I put down, I would not be able to "unload my home in a hurry" around here, and yet this is the place I need to have my home for employment purposes. The best I could hope for if the unforeseen happened would be to rent it out.

Anyway, because I didn't put a lot down, I have a lot more in savings than I would have otherwise. I could pay the mortgage for a year if I had to.

There are all kinds of circumstances and I'm perfectly secure in my own. I'm nowhere near danger of foreclosure. So far my decision to buy with 3% down has been a great decision. Why would you assume that since I put 3% I "can't afford" to buy? Jeez, I paid the same in rent as I do on my mortgage payment. Guess I can't afford rent either. Guess I should be homeless.

I think a lot of people are missing my main point here. I am not trying to discuss whether or not you can afford the mortgage payments. The point I am trying to get at is to look at the very big real estate picture when you purchase.

Take into account closing costs to obtain a home (yeah, as I stated, in this current "buyers market" sellers are paying a lot of the closing costs) but in a normal real estate market sellers/buyers split the costs. Fast forward to selling your home, and you end up paying 5-6% real estate costs plus state stamps/transfers.

Where people have gotten in trouble is that they failed to look far into the future.

So if you put down 3-5% and what happens if your home depreciates 10% in the next 2 years (I hope it doesn't, but it could). Can you cover your losses?

So you should ask yourself before you even buy, what happens if I need to sell in a hurry? Can I afford to sell?

I've been watching this newer show called "Real Estate Intervention" on HGTV. It's a show that tells about homeowners caught in tricky situations. Some are financially secure and are able to get out (bring money to the table or had lived there for a long time that they built up tons of equity).

Some, on the other hand are not financially savvy. There was this single woman who purchased "at peak in 2005" for 229K. But now owes 240K on her home (neg amot loan). Her home was worth maybe 209K. Well if she would have put down 10%, plus paid into the principal, she would have only owed around 195K on the home after 4 years and would have been able to sell even with the price deprecations we have seen. So this woman is in a bind, and needs to consider a short sale because she's underwater about 40K on the home, probably more with real estate commissions. I'm sure she didn't have 40K cash sitting around. She got in this trouble because she stated it made more sense for her to buy at the time than to rent. Sounds familiar to a lot of people?

But it pays to look into the future, cover yourself. Sure, if you are financially secure (have tons of cash reserves to cover your potential future losses), than by all means, put as little down as possible. Maybe Americans will have learned from this financial crisis we have gone through this past year. At least personal savings rates are up from negative 1 percent (yes that's negative 1), to about 6% savings. That's a start. We need to be saving about 5% of our income each year (that's post-tax money OUTSIDE of your retirement). You should also try to save 5% towards retirement also (usually pre-tax, excluding any employer matches for those lucky to have employers still matching).

[fumanchu41]

Originally Posted by COPANUT

If that's the case, I'd say the agents that listed the property are incompetent.

UHH, NO! I guess you're calling me incompetent. I set the price, not my realtor. My REASONING IS TO GET AS MANY PEOPLE TO VIEW THE HOME AS POSSIBLE. I know that I have the best product on the market, in the particular neighborhood. ONCE THEY VIEW MY PRODUCT, we create multiple offers driving the price up to what we orginally wanted to sell the property for. How would you like to sell a home in 5 days or less? BTW-Most realtors work extremely hard, be respectful.

[Mightyqueen801]

Originally Posted by janetvj

You cannot make broad generalizations about things like this. For some people, buying a house with little or no money down is not a smart move. But that doesn't apply to everyone. As for myself (and I'm sure I'm not alone), I was a state government employee who already had 15 years of service in my position. The possibility of my getting relocated was practically nil (the State of MD does not have offices in other states), there was little chance that I'd be fired (15 years of service and outstanding job performance ratings), laid-off (I was in a revenue-producing position and fairly well insulated from any type of budget issues), had tons of sick leave as well as membership in the leave bank that would continue to pay me in the event of a serious illness, and was at that time in a rental and paying more in rent than what my mortgage payment (including escrow) ended up being.

Buying was a very smart move, and I was glad there were programs that allowed me to buy with no money down. I had no family member to give me the money like a lot of people do, I had no partner or spouse to help out, and although I had no debt other than a car payment, I did not make enough money to be able to save for a down payment. But I am a responsible person who deserved the opportunity to be able to be a home owner instead of making some landlord rich for the last 16 years.

Ha, our situations are also similar job-wise, except I've got 30 years.

[whydoucare?]

Originally Posted by 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.

My cousin just bought a house and she would not have been able to do it if it wasnt for a FHA loan. Paying the mortgage is no problem but it would have been impossible for her to pay all her current rent and bills AND save $20,000 or 30,000 down payment. She bought her house and can easily make her payments.

[k374]

Originally Posted by 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.

Yes, you are right, Real Estate make sense only when it is a long term strategy. Because it is a long term strategy one should be stable and have ample savings to tide them over in case something happens to their job or circumstances. This is why buynig with tiny downpayments, more than you can afford, not planning for future expenses etc. is a disaster in the making.

Way too many people are just buying over their heads without thinking, they are buying using a best case scenario when they should be planning for the worst case. Job losses and unexpected expenses happen, that's life!

The FHA is just encouraging this irresponsible behavior by requiring as little as 3% down, increasing limits to atrocious amounts ($729,000 in CA ) and lending to people with dubious credit.

[k374]

Originally Posted by bigcats

Jeez, I paid the same in rent as I do on my mortgage payment. Guess I can't afford rent either. Guess I should be homeless.

There is a big difference between rent and mortgage, if you can't afford the rent tomorrow you can just tell the landlord goodbye and do something else like rent a cheaper place, get a roomate, move in with family etc. etc. If you can't afford the mortgage you are SCREWED...it is a much bigger commitment.

In addition buying has additional responsibilities like maintainence and repairs which can be substantial costs not reflected in just the monthly payment.

[le roi]

Originally Posted by Braunwyn

I don't understand why putting less than 20% down is considered irresponsible.

Well, it is irresponsible that we as a nation have created a system where we not only allow it, but taxpayers subsidize it or implicitly guarantee it.