20%??????
First of all, I'm a renter. And I'm new here, so forgive me if this has been brought up before...
But if they're talking about requiring 20% for a down payment like in the old days, people will never again buy homes in large numbers.
We live in a country with something close to a -1% savings rate, and people's stupidity keeps the economy going. Joe Public spending 101% of what he makes is good for local merchants.
Here's my question - has anyone personally seen this type of credit tightening?
I realize that banks need you to have some skin in the game so you can't just walk out on the loan, but 20% seems like they'd be committing suicide.
Even if the average Seattleite saved 10% a year and made $50k, if a house is $400k and he needs $80 to get his foot in the door, it would take him SIXTEEN YEARS to save up the cash (and plenty can happen in that time). And fine, even if the banks cut their requirement down to 5%, you're still looking at four years.
It's the right thing to do, but I don't see banks enforcing it. In fact, I think they'll get pressure from the federal government not to, because cash marinating in a savings account isn't keeping the economy going.
I think it'll be interesting to see how this element of it plays out.
But if they're talking about requiring 20% for a down payment like in the old days, people will never again buy homes in large numbers.
We live in a country with something close to a -1% savings rate, and people's stupidity keeps the economy going. Joe Public spending 101% of what he makes is good for local merchants.
Here's my question - has anyone personally seen this type of credit tightening?
I realize that banks need you to have some skin in the game so you can't just walk out on the loan, but 20% seems like they'd be committing suicide.
Even if the average Seattleite saved 10% a year and made $50k, if a house is $400k and he needs $80 to get his foot in the door, it would take him SIXTEEN YEARS to save up the cash (and plenty can happen in that time). And fine, even if the banks cut their requirement down to 5%, you're still looking at four years.
It's the right thing to do, but I don't see banks enforcing it. In fact, I think they'll get pressure from the federal government not to, because cash marinating in a savings account isn't keeping the economy going.
I think it'll be interesting to see how this element of it plays out.
Comments
Who knows how long it will stay that way.
I can pretty much guarantee we aren't going to see 20% requirement instituted, however. I don't think there ever was one, but maybe someone can correct me. Maybe in the 40s or 50s.
I would consider 50k/yr to be a decent wage.. If an individual making a near-median wage can not afford a lower end home, there are bigger problems than a 20% requirement--which is necessary to make payments manageable in any case.
I actually could pay 20% now for a entry level house in this market, but I see it as an extremely risky use my the capital I've worked so many years to build.
Alan - I totally agree with you. Given that you're gonna give 8% to the REIC and the state at the back end, your 20% is 12% immediately - so any downturn eats up your principal pretty quickly.
worked fine in the past, but I wouldn't put my money into that today any more than I'd buy a down index fund at 13,100!
I can't see this happening unless the US economy gets thrown into a deflationary recession. Current growth is so dependent on debt spending that a sudden shift to saving would cause a sharp contraction in GDP.
While the FICO based underwriting standards that came about during the credit bubble have some shortcomings, ultimately I think they're going to stick around. Who knows though - if Alt-A default rates start creeping up into the 25% range (about 10 times what we're seeing now) maybe that will change.
oh, you mean maybe like this?
1. I bought at 35% less than what the bank was willing to give me to ensure decent cash flow;
2. I made a huge lifestyle change by going from a 7-10 minute commute from Magnolia to a 60 minute or more commute;
3. I had originally thought I was getting a 20% mortgage at higher fixed rate of about 7.5%, but ended up with the HELOC (long, boring story of screw ups at my closing). But the HELOC mortgage does NOT have an early payoff penalty, which I took to be a big advantage.
Hope this helps!