25% downpayment!?

[brunt]

Thing is i have known so many people who have bought at zero to 5% down, myself included, but didn't buy the biggest/best with what the bank would lend them. 2 things to note here is that with zero down on a very affordable place is quite easy to manage as my case is. The other thing i noticed with friends and family, most of them borrowed the 5% for the downpayment, even that makes the whole purchase riskier because all of a sudden they have 2 debts instead of one.. and nobody tells the bank they borrowed the down payment but i bet you money most people do, or at least a very large number do.
So far neither myself or my friends have had their house repossessed so it will take a lot more to convince me that 20% is actually necessary and that is especially true for applications for modest mortgages.

What you are saying makes sense in a rising market. But in a market correction of 25% or so, these very people will be very underwater on their houses.

As the investment prospectuses always say "past performance is not an indication of future performance". High leverage works wonders in a rising market. But in a falling market, it works far worse than its goodness in a good market.

Low down payments have worked well in the last number of years. But those of us who have seen a couple of housing bear markets (NOT the tiny hiccup we saw in 2008) know how this dance ends. This one will be no different - it will not end well for those who extended themselves.

[brunt]

its becoming harder and harder for the young generation to purchase a home.

Part of this is that first time buyers are trying to buy a house that is bigger than their parents' last house. Average house square footage has skyrocketed in the last couple of decades.

It has typically always been hard for young people to purchase a home. The last decade or so has been an aberration, not the norm. It was falling interest rates coupled with loosening lending standards that sent prices skyward. We are now starting to see tighter lending standards that will bring housing back to its long term average.

However i have a few friends that are in real estate and they say that the market is slowing down. That if your looking to buy you should wait. prices may come down.

It has already started. I am tracking a large number of houses, and in my particular region of interest, the number of sales outside of town has fallen off of a cliff. Nothing is selling. Most sellers are sticky on their prices, and will find that there will not be a bounce back right around the corner.

The few houses that have gone through sizable price reductions (in the 25% region) STILL aren't selling.

[primal]

What you are saying makes sense in a rising market. But in a market correction of 25% or so, these very people will be very underwater on their houses.

As the investment prospectuses always say "past performance is not an indication of future performance". High leverage works wonders in a rising market. But in a falling market, it works far worse than its goodness in a good market.

Low down payments have worked well in the last number of years. But those of us who have seen a couple of housing bear markets (NOT the tiny hiccup we saw in 2008) know how this dance ends. This one will be no different - it will not end well for those who extended themselves.

Well all I can say is that seeing how sales have dropped off I don't see how 20-25% is going to help that. 10-15% would have made more sense even just to keep people more open to the idea of buying.. all i see will happen for a while is more rentals will be needed, in fact I have even started thinking about renting mine because i just don't see it selling in a farming region where people seldom have 20-25% to put down on a house.

[brunt]

Well all I can say is that seeing how sales have dropped off I don't see how 20-25% is going to help that. 10-15% would have made more sense even just to keep people more open to the idea of buying.. all i see will happen for a while is more rentals will be needed, in fact I have even started thinking about renting mine because i just don't see it selling in a farming region where people seldom have 20-25% to put down on a house.

I understand. You and I have very different philosophies in this area.

I believe that it is far better to have people be in a position where they can weather a fall in house prices with 20% down payments than it is to artificially extend the house price increases with 5-10% ones. Far better worst case scenario. Far better average case scenario. Better all around, I believe.

But as I mentioned, I am a fiscal conservative and value safety far more than inflating (or even maintaining) prices.

I also maintain that larger down payments will actually make houses more affordable. As they should be.

[MortgageQueen]

I think it would also be good to keep in mind that people would like to raise their children in a proper home, perhaps the home they may come back to, to visit their folks in after they grow up. After all, that was "originally" what home ownership was all about. . . family.

[primal]

I understand. You and I have very different philosophies in this area.

I believe that it is far better to have people be in a position where they can weather a fall in house prices with 20% down payments than it is to artificially extend the house price increases with 5-10% ones. Far better worst case scenario. Far better average case scenario. Better all around, I believe.

But as I mentioned, I am a fiscal conservative and value safety far more than inflating (or even maintaining) prices.

I also maintain that larger down payments will actually make houses more affordable. As they should be.

The problem is the change is too large, this hits lower end income families harder because saving in the first place is near impossible and basically tells them too bad. Not to mention there being an enormous difference between a $100,000 and a $400,000.

[primal]

I think it would also be good to keep in mind that people would like to raise their children in a proper home, perhaps the home they may come back to, to visit their folks in after they grow up. After all, that was "originally" what home ownership was all about. . . family.

I know what you are saying but my home was built by the town blacksmith in roughly 1880 when it was a major trade route between Montreal and New York, it's last 30 years saw it neglected, since i have had it 5 years it has become a livable home again. A home is what you make it not what you buy. It cost me $60,000 with no downpayment and it should be good for another 100 or so years... The renovations i have done could not have happened had the bank asked me for a 25% downpayment

[MortgageQueen]

I know what you are saying but my home was built by the town blacksmith in roughly 1880 when it was a major trade route between Montreal and New York, it's last 30 years saw it neglected, since i have had it 5 years it has become a livable home again. A home is what you make it not what you buy. It cost me $60,000 with no downpayment and it should be good for another 100 or so years... The renovations i have done could not have happened had the bank asked me for a 25% downpayment

I'm agreeing with you Primal. . . I think you misunderstand what I'm saying.

[primal]

I'm agreeing with you Primal. . . I think you misunderstand what I'm saying.

Doh, I get it now and you are so right. Where i am used to be a depressing little rental town and looked it too but over the past 10 years that has all changed along with it's look now that people own some of the places they grew up in.

[i_forget]

I personally do not think that there should be a requirement for any down payment. I think that banks should have stricter lending qualifications and they should stop lending people beyond their means. Instead of looking at just a persons credit score, they should look at their income and payment history and their debts.

Just because a person is not a "saver" or does not have mounds of credit available to them does not mean that they are not able to afford a home.

[primal]

I personally do not think that there should be a requirement for any down payment. I think that banks should have stricter lending qualifications and they should stop lending people beyond their means. Instead of looking at just a persons credit score, they should look at their income and payment history and their debts.

Just because a person is not a "saver" or does not have mounds of credit available to them does not mean that they are not able to afford a home.

I couldn't agree more, banks are over looking many other ways of lending more safely without tapping out our pockets. Even paying rent should should be taken into account more seriously and that was one reason I had my brother sign a letter stating that I had paid 5 years of his mortgage payments which far exceeded(double) what payments i would be making on the mortgage i applied for.