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I think if someone is incapable of saving 3% towards buying a house they really shouldn't be in the market for one purely because of the repair factor. Things get old. The roof, water heater, a/c, whatever. And if someone can really get in trouble if they can't save up enough to take care of things that may come along.
That's a good point, except as Kev pointed out, they may want that money liquid so they can pay for expenses. Some people make the mistake of putting down too much to be able to afford lower payments, and then end up having nothing to make those repairs. It goes back to HOW one spends the money they have. Kev's a perfect example of how that works when most would think it foolish.
Banker isn't saying these people are incapable of putting down 3%....he's saying that percentage is "paltry". Everything is relative to how each individual is planning.
If a person is renting, then they aren't saving anything. A lot of rental prices might as well be house/condo/townhome payments.
No doubt that the people who have to move for job/family reasons will be hurt here...but if they put a good down payment down on their house they are selling then they should be able to get out of it...even if they don't gain any appreciation..
Several things have killed our economy (banks and consumers working together to do all of them....)
- 100% or near 100% financing. This has allowed people to buy homes they really can't afford
- Home equity loans - people have lost the goal that our parents generation had - that being to own their homes free and clear by they time they retire...65 years old. Now you see folks in their 50's and 60's buying expensive homes based on their current (most likely peak earning years) income and puting them on 30 year mortgages...where is the logic in this? It is feeding our greed for a bigger house!!!
- 30 year mortgages. It used to be that people bought homes on 15 and 20 year mortgages but in the last 20-30 years we have seen nearly all homes being purchased on 30 year mortgages. On those long term amortizations it is very hard to gain equity since for the first five -10 years you are paying nearly all interest.
On my first home, my wife and I put 20% down and got a 25 year mortgage. When rates dropped in 2002 we refinanced to a 15 year mortgage because our goal was to maximize our equity...even if the property did not appreciate. When we sold we had significant equity which allowed us to put 40% down on our current house. My goal is to have this one paid off by the time our daughter goes to college...about 15 years from now. We are on a three house plan which means that our last home which we will buy when we retire....will be paid for in cash when I am 55-60 years old...about 20-25 years from now.
I am not a genius and don't make a ton of money. In fact, my wife stays home. We just live on less than we make (most people don't) and prioritize saving and being debt free. If more people had this mind set our country wouldn't be in the mess it is in. Saddly the banking industry has facilitated the feeding frenzy of too much debt to live lives that most people can't afford.
Our society needs to return to a point where people take pride in having no debt. Where having a home that is paid for is a status symbol...not having a big fancy home (and mortgage)! Same goes for vehicles - we have two paid for vehicles and love it!!! Granted one is 13 years old and the other four years old...but still. It is great not having car debt.
Would it make it harder for regular folks to buy houses if things changed to big down payment requirements? Yes. But house prices would drop making it more affordable. And another thing...if people bought houses that were more in line with their season of life...then they would find those mortgages easier to handle. I am always surprised to find out that people (newly married kids) have fancier houses than I do being in my mid 30's or my parents and my dad is a Dentist! Most people have just lost perspective.
well said banker...
may i just add... its not just in housing... im sure everybody can admit that debt/loan/mortgage is essential part of american lifestyle - from furnitures, to appliances, cars, college tuition... and the list go on and on...
only here in america where people can really buy everything in credit... able to get something you like or want (not need) without saving for it... because you can afford thru credit...
if that is something good or bad, is debatable, or however you want to look at it...
I think if someone is incapable of saving 3% towards buying a house they really shouldn't be in the market for one purely because of the repair factor. Things get old. The roof, water heater, a/c, whatever. And if someone can really get in trouble if they can't save up enough to take care of things that may come along.
Another excellent point. It cost money to own it...just the maintenance costs. Yard maintenance, salt for the water softener, air filters, pest control...all things that you don't pay for as a renter. The maintenance and repairs associated with home ownership can be very costly - another reason the down payment % requirement should be higher.
That's a good point, except as Kev pointed out, they may want that money liquid so they can pay for expenses. Some people make the mistake of putting down too much to be able to afford lower payments, and then end up having nothing to make those repairs. It goes back to HOW one spends the money they have. Kev's a perfect example of how that works when most would think it foolish.
Banker isn't saying these people are incapable of putting down 3%....he's saying that percentage is "paltry". Everything is relative to how each individual is planning.
If a person is renting, then they aren't saving anything. A lot of rental prices might as well be house/condo/townhome payments.
If I couldn't afford a home I would rent the cheapest thing I could (within reason and safety of course) to save up the down payment to avoid paying PMI and keep my payment low. As I did with my current house purchase I put 40% down but have budgeted money every month toward a home maintenance fund. The same as I have for a car fund...which is much easier now that I have no automotive debt.
The key here (whether you are fortunate enough to have liquidity to invest or not) is that you buy something that you can comfortably afford on one income and something that you can have paid off prior to your retirement years. Another thing to keep in mind is that your house payment shouldn't be so large that you can't afford to put money into a Roth IRA or 401(K) in addition to saving for a rainy day.
Again, in my line of work I see far too many people that do not save, have no retirement and have a home that will not be paid off before they retire... Those who doubt the reality just look at the current mortgage/housing crisis. It is because of all those factors our country is in the mess it is in. People bought the max they qualified for - not what was best for their family so that they would be living below their means...
If I couldn't afford a home I would rent the cheapest thing I could (within reason and safety of course) to save up the down payment to avoid paying PMI and keep my payment low. As I did with my current house purchase I put 40% down but have budgeted money every month toward a home maintenance fund. The same as I have for a car fund...which is much easier now that I have no automotive debt.
The key here (whether you are fortunate enough to have liquidity to invest or not) is that you buy something that you can comfortably afford on one income and something that you can have paid off prior to your retirement years. Another thing to keep in mind is that your house payment shouldn't be so large that you can't afford to put money into a Roth IRA or 401(K) in addition to saving for a rainy day.
Again, in my line of work I see far too many people that do not save, have no retirement and have a home that will not be paid off before they retire... Those who doubt the reality just look at the current mortgage/housing crisis. It is because of all those factors our country is in the mess it is in. People bought the max they qualified for - not what was best for their family so that they would be living below their means...
Great posts Banker.
It is not a surprise that people get into so much debt to own a house when:
(1) The Tax code is written to absolutely favor home in-debtness - if you own a million dollar home every penny in mortgage interest is a tax write off.
(2) If you rent - no Tax benefit.
(3) If you save you page Capital Gains Tax and with inflation it is not exactly a winner.
(4) Our government is leading by example. How can we be expected to be thrifty and debt free when our government has borrowed out the yin-yang.
(5) Watch out folks what we are seeing today is just a side show compared to what is going to happen when our medicare liabilities come due. Hopefully I will be pushing up dasies by then.
may i just add... its not just in housing... im sure everybody can admit that debt/loan/mortgage is essential part of american lifestyle - from furnitures, to appliances, cars, college tuition... and the list go on and on...
only here in america where people can really buy everything in credit... able to get something you like or want (not need) without saving for it... because you can afford thru credit...
if that is something good or bad, is debatable, or however you want to look at it...
I would say it's good if it involves investments or assets. Car loan, home improvements.....but keep everyday charging to a minimum unless you can pay off the balance each month. Maxing out spending limits is not good....but paying off credit cards isn't good either. As "Tony Sinclair" says...."everything in moderation!"
I just read this thread and wanted to make a few points with respect to MY personal situation. I'm not in favor of mandating large down payments for people with good credit (bad credit is a difference situation and in that case I would agree mandating a large downpayment...minimum 10%) because usually people with good credit have good credit because they've managed to make smart financial decisions.
In my case, I am ex-military and as-such, financed 100% of my home purchase of $320,XXX. I used the VA loan and also obtained a great rate (4.8%) for a fixed 30-yr mortgage back in March of this year. Now I see that some of you plan to sell a house after a few years but in my instance I plan on staying here and raising a family (currently a DINK). I know my employment is stable as is my fiance's and I bought a MUCH larger house (~3530sqft. with 0.60 acres) than we need for the express purpose of growing into the home and knowing that due to the great rate I got, it was affordable (wouldn't have been at the currentl 6.5% rates). I, however, ensured that I budgeted everything from water softener purchase, salt, security monitoring, lawn services (until we get our own equipment), trash, utilities, etc. That goes without saying...everyone should do that...no excuse for not doing it. I also looked at property taxes and figured the max 10% per year cap increase so I could see how my property taxes would go up. With all that said, I don't have debt, own two cars, both my fiance and I have 401K type plans with our employers etc. We don't have huge amounts of money in a savings account although I do put extra away each month into an ING account but financing 100% allowed me the financial freedom to use any money I would have spent on the house for other things I needed such as furniture for the house, washer/dryer, refrigerator, etc.
When I applied for my home loan, I was shocked to hear I was approved for about $550K. I make very good money for SA but there's no way I could have afforded a $550K mortgage. There has to be some responsibility on both parties but I still put the bulk of that on the individual beacuse you should be doing your own math to see if you can afford it or not. But the banks do share in that and the amount they were willing to give me wasn't something I could have afforded. They should ABSOLUTELY factor in house maintenance, utilities, etc.
Bottom line, everyone needs to be responsible for themselves and we can't just say no 100% financing...I understand that will help but it won't solve the problem.
Banker....please remember this is a very public forum. You make some good points, but everyone wants to "own" and feel good about. You forgot the "sub prime" mortgage mess in your synopsis. I feel for young couples starting out wanting to get ahead of the game and just got sucked into something they didn't quite understand.
And while you may have your life in perfect financial order, please remember $6000 or $7000 is not "paltry" to some people. I agree that living within one's means is critical, but please be respectful of everyone's economic circumstances. Some people are purchasing homes for less than $100k....and they are proud to do it. It's not "paltry" to them.....they have a dream just like you.
My dad always said success is not measured by how much you make, but how you spend it! That goes for any socio-economic group.
See, I don't think owning a home is a 'right.' It's a privelege. SHELTER is a right, but we don't ALL need to own it. I think the American focus on homeownership is part of the problem - young couples may really want to feel the pride of homeownership (I don't get the 'pride' in the owning, maybe it making it look nice, but not owning) - but frankly, that may not be a realistic aim. And that's ok. Young people - and old - need to realize that if they can't afford to buy, they shouldn't.
Sorry, I get a little bit annoyed at the concept that every young couple starting out deserves to buy a house. I've heard far too many young 20-somethings whine about how they want everything, they want it NOW. Forget that our parents' generation got by on MUCH less, for much longer.
Nothing feels 'good' about losing a home in foreclosure. Better to teach people it's ok NOT to own, until their finances are in order and they can realistically afford it.
As for banker's statement - if they're buying a $200K home, then $6K vs 7K is a small difference. If they're buying a $45K home (we had one in our 'hood), the difference between 3 and 3.5 % is a couple hundred dollars. If they can't afford that, honestly, maybe they shouldn't buy, because it's going to cost that for repairs and little issues that come up.
Owning is great and can be a sound investment. It can also be a very bad investment if not done properly.
One needn't measure success by what one BUYS, but in who they are and what they give to their fellow humans.
I've owned several properties in Mahnke Park and have been happy with the investment. Rents have risen steadily and the Re-habs are prevailing. I plan to move though -- so not sure if I want to be an out of state owner. I kind of hate to sell though, because the potential looks very good for this area.
I bought my home between 1604 and 410 brand new all brick in 2007 and it has appraised well each year thank fully I'm glad.
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Loan Qualifications
