Home loan question

[JHZR2]

Originally Posted By: Mr Nice
Originally Posted By: JHZR2
If you cant afford 20%, chances are you cant really afford the home, or will be stretched too thin to do other responsible financial things. Never one size fits all, but these classic rules of thumb exist for reasons...

Im sure the lender is making out and covering their risk one way or another...


Very few people have 20% cash saved up to purchase a house.


And ~50% of the population is below average. Your point?

Doesnt make these time tested rules wrong, or the basis for statistically riskier situations acceptable or right.

It just costs people more - IOW, they are punished for not doing so and increasing risk.

I doubt after 2008 that it should be any other way.

Hate to be cold or callous, but then again I see people (students, so theyre young) throwing money away that could be invested or saved towards these goals. I see new PHDs with good jobs ($95k+/yr starting out) not even considering saving for retirement in their early years. There's a general lack of discipline and planning.

But you like your T and VZ divvy, so let them keep buying iphones, right?

 

[Wolf359]

Originally Posted By: PandaBear
Renting is flexible, owning is not. If you decide to move because of local economy, many of your neighbors will be too, and the 130-150k homes may not worth the same at the time. I'm not saying owning is a bad choice, but you have to factor in how much risk you can take.

The 0 down custom home deal may inflate the price so you can get 0 down (like a 0% financing new car that you have to give up 1500 cash rebate for) , or at a higher interest rate.


There are several rent vs own calculators out there. For renting if you think you'll move in the next 3-5 years, you're better off renting. I think the average tenancy is 3 years. For owning, people tend to stay put longer, an average of 7-10 years, but you still run into people that are selling for whatever reason after a couple of years and then you have people who stay in one spot for 30 years.

 

[Pop_Rivit]

Originally Posted By: Mr Nice
Originally Posted By: JHZR2
If you cant afford 20%, chances are you cant really afford the home, or will be stretched too thin to do other responsible financial things. Never one size fits all, but these classic rules of thumb exist for reasons...

Im sure the lender is making out and covering their risk one way or another...


Very few people have 20% cash saved up to purchase a house.


Nonsense. Just taking the most recent statistics that I could find with a quick search, the average down payment for a conventional loan was 18.4% of the purchase price (Q1 2015). But don't let actual statistics get in your way.

Anyone who is planning a home purchase should put at least 20% down. And quite frankly, if they can't afford to pay it off in less than 15 years they're purchasing too much house. It just takes a little self discipline and planning in order to quickly build some equity, especially in a starter home. Once that equity is built, it can then be rolled it into a larger home.

 

[Mr Nice]

JHZR2,

Correct me if I'm wrong.... but I think you said a while back (1-2 years) that your parents paid for your college and you were lucky to be in that situation. You are very smart and have a Ph.D. But how much $$$ is your education if you had student loans with interest to pay it back ?


Pop_Rivit,

Sure people are putting down an average of 18.4% down. Did their parents help with that down payment ?

Again, not many 25-30 year olds have $50-70K saved to purchase a house.
Would you help you kids buy a house if they didn't have the 20% saved up ?

 

[supton]

http://www.realtytrac.com/news/home-prices-and-sales/q1-2015-u-s-home-purchase-down-payment-report/
Quote:
IRVINE, Calif. – June 4, 2015 — RealtyTrac® (www.realtytrac.com), the nation’s leading source for comprehensive housing data, today released its Q1 2015 U.S. Home Purchase Down Payment Report, which shows the average down payment for single family homes, condos and townhomes purchased in the first quarter was 14.8 percent of the purchase price, down from 15.2 percent in the previous quarter and down from 15.5 percent a year ago to the lowest level since Q1 2012.

...

The average down payment in dollars was $57,710 in the first quarter, up slightly from $57,618 in the previous quarter and down slightly from $57,992 in the first quarter of 2014. The average down payment in dollars for FHA purchase loans originated in the first quarter was $7,609 while the average down payment for conventional loans backed by Fannie Mae and Freddie Mac was $72,590.

...

The share of low down payment loans — defined in the report as purchase loans with a loan-to-value ratio of 97 percent or higher, which would mean a down payment of 3 percent or lower — was 27 percent of all purchase loans in the first quarter, up from 26 percent in the fourth quarter and also 26 percent a year ago to the highest share since Q2 2013.

 

[Wolf359]

Originally Posted By: Mr Nice
JHZR2,

Correct me if I'm wrong.... but I think you said a while back (1-2 years) that your parents paid for your college and you were lucky to be in that situation. You are very smart and have a Ph.D. But how much $$$ is your education if you had student loans with interest to pay it back ?


Pop_Rivit,

Sure people are putting down an average of 18.4% down. Did their parents help with that down payment ?

Again, not many 25-30 year olds have $50-70K saved to purchase a house.
Would you help you kids buy a house if they didn't have the 20% saved up ?




You are confusing a few things. Where they get the 20% doesn't matter as much as having it. That's the whole point. They have the 20%, either they saved it or the standard line is beg or borrow. You're not supposed to borrow, but it's pretty common to borrow it from family or friends, just make sure it's in the account for at least 2 bank statements and the lender will have no idea if it was borrowed or a gift. The 20% is a test to see if they're homeowner material that qualifies for a lower rate.

I think only about 60% of the people are homeowners and a certain percentage of that are older Americans. Many people probably don't have 20% for a home, but the people who do buy homes, many of them have the 20%.

 

[MNgopher]

Just remember that there is no such thing as a free lunch. The costs for increased risk are built into the loan someway, some how. Whether its a higher interest rate, PMI, etc... the costs are there.

I'd agree that in a perfect world, 20% is a nice number to use for a down payment.

That being said, there are plenty of other situations where that doesn't always hold true. I'll use my own scenario.

When I was young, freshly married, and starting my career, we obviously had to live somewhere. At the time, my options were renting an apartment (or other) or buying a townhome.

Fresh out of college, a 20% downpayment was not going to happen. Rent was insanely expensive due to a shortage of units in the area. Doing the math, I could keep paying rent monthly down a rathole and have nothing to show for it in the end, or I could take out a 3% Down, 30 yr fixed FHA loan on a 2 bedroom townhome, pay PMI, and a higher interest rate than a conventional loan, and after property taxes and insurance were factored in, still pay less per month than what renting was. Of course, the market could go down and I end up with no equity. Or, it could stay the same or increase in value and I walk away after selling it with the equity.

In our case, that is what happened - that equity led to being able to purchase our current home on a 20% down conventional loan, 30 year fixed.

No gimmicks. No interest only, no variable rates or ARMS. Simple, practical decisions.

While there are some on this board who profess that their way is the only correct way, and any other way somehow reflects a lack of discipline, I'd argue the opposite - there are a variety of products out there for varying situations, and just because it isn't my situation, doesn't mean its wrong. That being said, that doesn't mean everyone should just go crazy - disciplined and informed choices are required.

 

[MNgopher]

Also recognize that a significant portion of the sales that have high percentages of money down are often the result of selling another property and using that equity to make the new down payment.

Food for thought anyways.

I'd be more interested in what percent of first time home buyers have 20% (or more) down. Willing to bet that number is substantially lower than the overall loan business!

 

[andrewg]

Originally Posted By: MNgopher
Also recognize that a significant portion of the sales that have high percentages of money down are often the result of selling another property and using that equity to make the new down payment.

Food for thought anyways.

I'd be more interested in what percent of first time home buyers have 20% (or more) down. Willing to bet that number is substantially lower than the overall loan business!


The 20% has always intrigued me as for the price of homes in a hot market are STARTING at $300k on up. Other than equity gained in a previous home being applied, who has that kind of money saved for a down payment? Not too many people.

It always amazes me when I watch those "House Hunter" shows on TV and these first time buyer are often looking at hugely expensive homes. Many times these buyers are very young. How in the world can a couple like this afford a $600,000 condo in Boston for example? A lot of these shows are like this. Not very realistic to what the average person can afford.

 

[KrisZ]

Having a sizeable down payment is a very good thing, but it is hard for the first time home buyers to have this kind of cash. On the other hand, it is not an excuse, or rather should not be used as an excuse, to only get the minimum and stretch out the amortization period to the max, so that one can "afford" the monthly payments. That's a quick way to get yourself under the water.

The minimum down and maximum amortization can work in a booming housing market and many people took advantage of that, but it is still very risky, as proven in 2008.

 

[KrisZ]

Originally Posted By: andrewg
It always amazes me when I watch those "House Hunter" shows on TV and these first time buyer are often looking at hugely expensive homes. Many times these buyers are very young. How in the world can a couple like this afford a $600,000 condo in Boston for example? A lot of these shows are like this. Not very realistic to what the average person can afford.


Why would you pay attention to what people do/don't do in some TV show? How do you know the purchases are even real? And who cares what others can or cannot afford? Everyone has this thing called brain between their ears and should use it from time to time.

 

[supton]

Originally Posted By: andrewg
It always amazes me when I watch those "House Hunter" shows on TV and these first time buyer are often looking at hugely expensive homes. Many times these buyers are very young. How in the world can a couple like this afford a $600,000 condo in Boston for example? A lot of these shows are like this. Not very realistic to what the average person can afford.


Well, those are entertainment shows; they probably are very selective about who they will put onto the show. And they want to keep viewers on board, so they pick and choose. I suspect that is in no way representative of what really goes on.

My guess, people are buying those $300k+ houses are doing so after being elsewhere for a while. Sure, a few are 3% down or whatever; but I don't think they constitute a majority. Or if they do, then the area must really be hot, with high salaries.

 

[cptbarkey]

Originally Posted By: andrewg

The 20% has always intrigued me as for the price of homes in a hot market are STARTING at $300k on up. Other than equity gained in a previous home being applied, who has that kind of money saved for a down payment? Not too many people.


People and entities you dont know have that kind of money saved. Step out of your bubble ace.

 

[Mr Nice]

Student college debt postpones buying a house for many. Especially if they are not making a lot of money.

Mortgage + property taxes + insurance + utilities + etc...

 

[HTSS_TR]

Originally Posted By: andrewg
It always amazes me when I watch those "House Hunter" shows on TV and these first time buyer are often looking at hugely expensive homes. Many times these buyers are very young. How in the world can a couple like this afford a $600,000 condo in Boston for example? A lot of these shows are like this. Not very realistic to what the average person can afford.

Originally Posted By: supton
Well, those are entertainment shows; they probably are very selective about who they will put onto the show. And they want to keep viewers on board, so they pick and choose. I suspect that is in no way representative of what really goes on.

My guess, people are buying those $300k+ houses are doing so after being elsewhere for a while. Sure, a few are 3% down or whatever; but I don't think they constitute a majority. Or if they do, then the area must really be hot, with high salaries.

For my first home in 1988 was $190k and I had 20% down.

My second home in 1997 was $540k and I had 45% down.

I was under the water with my first home, I sold it in 1999 for $13x,xxx for a total lost of more than 70-80k (I had some upgrades to the house). The loan balance was more than $10k more than I received from escrow.

Yes, during those 8-9 years we saved a lot more than we spent to be able to buy a house in a better/safer area. Irvine was and is 1 of the 10 safest cities in America. We almost never need to lock front door and any other door for 17 years living there.

And we made out alright, we gained almost a million after living in Irvine house for 17 years.

 

[99Saturn]

One thing I have not seen mentioned regarding avoiding pmi is appraised value versus loan value. We bought 5 years ago, and were willing to put 20% down but held back with the plan of paying at closing if we needed. Our house appraised high and we didn't even need what we had committed to avoid PMI.

 

[Wolf359]

Originally Posted By: 99Saturn
One thing I have not seen mentioned regarding avoiding pmi is appraised value versus loan value. We bought 5 years ago, and were willing to put 20% down but held back with the plan of paying at closing if we needed. Our house appraised high and we didn't even need what we had committed to avoid PMI.


Because that really no longer applies. All the appraisals I've had done lately just come in at the sale price. Maybe 5 plus years ago it would come in slightly higher, but they don't seem to do this anymore. But then again, most homes I've done lately have 20% for a down payment and the appraiser always sees the P&S so they know what the down payment is so maybe they don't play with the numbers when it doesn't matter.

 

[99Saturn]

Originally Posted By: Wolf359
Originally Posted By: 99Saturn
One thing I have not seen mentioned regarding avoiding pmi is appraised value versus loan value. We bought 5 years ago, and were willing to put 20% down but held back with the plan of paying at closing if we needed. Our house appraised high and we didn't even need what we had committed to avoid PMI.


Because that really no longer applies. All the appraisals I've had done lately just come in at the sale price. Maybe 5 plus years ago it would come in slightly higher, but they don't seem to do this anymore. But then again, most homes I've done lately have 20% for a down payment and the appraiser always sees the P&S so they know what the down payment is so maybe they don't play with the numbers when it doesn't matter.


Yeah that's exactly what a broker and RE agent said 5 years ago when I asked what happened regarding PMI and down payments if the house over appraised - response "that doesn't happen", my response - so it won't hurt to hold the down payment for now then. Then it did happen. It's overly simplistic to say it doesn't happen, or applying what happens in one market to all markets. I'm not claiming we got a killer deal, or that the market here operates in some crazy other dimension, but it can happen.

I'd just as well argue that the appraiser is forcing an appraisal for good or bad when they know all the numbers.

 

[JHZR2]

Originally Posted By: Mr Nice
JHZR2,

Correct me if I'm wrong.... but I think you said a while back (1-2 years) that your parents paid for your college and you were lucky to be in that situation. You are very smart and have a Ph.D. But how much $$$ is your education if you had student loans with interest to pay it back ?



It would have been $80k in ca. 2000 dollars. I lived in the dorm, ate in the dining hall, and rarely had my own vehicle at school. No starbucks, no fancy stuff.

I also chose a field where grad school is not only paid for by the program, but they pay the students a decent wage.

We are also saving for our toddler's college, so they are not weighed down with excess debt from schooling. Yet another angle called discipline. We didnt do other things until we saved and paid for certain things that we knew took priority.

 

[SteveSRT8]

Originally Posted By: KrisZ
Originally Posted By: andrewg
It always amazes me when I watch those "House Hunter" shows on TV and these first time buyer are often looking at hugely expensive homes. Many times these buyers are very young. How in the world can a couple like this afford a $600,000 condo in Boston for example? A lot of these shows are like this. Not very realistic to what the average person can afford.


Why would you pay attention to what people do/don't do in some TV show? How do you know the purchases are even real? And who cares what others can or cannot afford? Everyone has this thing called brain between their ears and should use it from time to time.


How dare you suggest such a thing!

From what I and my Wife see being in dozens of folk's homes every week, not everyone manages their money very well. But at least a few of them have that dose of uncommon sense required to put off immediate joy for a longer term goal...