9/30/2011 12:28 PM ET|
Return of the 20% down payment?
But again, all that is in the future. For now, the big question for people who want to buy a home is: Should they pull the trigger now or wait until they have a bigger down payment saved?
"I think you should set a goal for yourself of saving at least 20%," Marimow said. "While I don't necessarily support the regulation (to make a minimum 20% down payment) because of what it would do to the housing market, I do think it's a good benchmark of what you need to save to get a home you can really afford."
In many ways, bigger is better. If you can scrape together 20%, for example, you would be able to avoid mortgage insurance. A bigger down payment typically wins you a lower interest rate, which would make your loan cheaper.
You do risk the possibility that interest rates and home prices could rise while you're saving. It's hard to forecast the future, but those risks seem pretty small, at least in the near term.
But Quicken Loan's Walters doesn't necessarily think you should wait. He believes that if you can afford the payments and you're ready to stay put for several years to ride out any further drops in the home market, you should consider buying.
"You should buy a home when you're ready and you can afford it," Walters said. "If you're stretching, you probably shouldn't buy."
My advice? Shoot for at least a 10% down payment before you buy, plus closing costs (nationwide, those costs average $4,000 on a $200,000 loan) and enough cash to pay three months' worth of mortgage payments after closing.
Saving up that much ensures that you get plenty of experience living below your means. That's an essential skill for a homeowner, since you're about to face a startling array of potentially expensive repair and maintenance costs. Being in the habit of saving will help you pay for those.
Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy" (find it on Bing). Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Join the conversation and send in your financial questions on Liz Weston's Facebook fan page.
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'bout time. I know the good people that think they 'deserve' a house of their own do not want to hear this, but if you can't produce 20%, you are probably not going to make your payments.
I build for a living. During the 'boom' I regularly had people come to me to get houses built. 100% financed for 3 years (sometimes 5) with low payments. 'Countrywide', heard that name enough. And I would try to explain to a couple that 'yes, they could make the payments today. But in a few years, when that $700 payment went to $1900, they were going to lose everything. You can't make that payment when you only make $2500 a month.' No one listened. They used to get mad at me. Lost a lot of opportunities by being honest. But I'm still building and the shyster builders, mortgage brokers, realtors, etc., are gone. Along with a lot of peoples dreams. 20% should be a minimum down payment.
We should go back to the 20% down payment. Saving money and spending frugally is lost in American society. Most people are credit happy and spend thrifty, then expect Washington to solve the debt problem. It was Americans that "drove the car into the ditch". Everyone had to build bigger homes, many of which people couldn't afford.
Today, young people are protesting "bankers", for "taking all the money". Folks, Americans busted themselves.
People have become addicted to credit like the alcoholic that needs a drink.
The housing bubble and resulting collapse was caused by many factors, there is really no single cause to blame. With that said, I've seen friends through the years make one big mistake.........OVERBUYING.
For example, when I bought my current home the realtor told me I could afford $100,000 range "easily". I asked her, what if I lose my job and end up working for Wal-Mart ? She says "oh, that's not going to happen", while keeping her eye on that higher commission. GREED.
I bought a home for half that and ended up retiring early, still able to make my mortgage payments on my lower income. This is called PLANNING.
Agreeing to a mortgage, regardless of your down payment, is a SERIOUS COMMITMENT.
It is also an INVESTMENT with NO GUARANTEE of appreciation.
IMO if anyone believes they can walk away FOR ANY REASON, this should be the most serious black mark on their credit and should remain there for what the remainder of what the mortgage time would have been.
But this kind of threat should NOT be why you live up to your commitment.
If that isn't clear...you have no business receiving credit from anyone.
To: STEVE SMITH: it's still a badge of honor in my book - actually 2 badges. The first was an honor to receive the loan from our bank, the second was to have it paid in full. We just made our final mortgage pmt - 12 yrs to pay off our 30 yr fixed. It's a glorious feeling to have 0 debt and to have saved so much interest. In late 2008 we decided that "we and our house" were a better investment than our retirement accounts. So for 2 years we've made double pmts AND extra principals here and there. Our home has doubled in value since our purchase, even factoring in about a 20% reduction in value the last 24 months. We believe this was still the best plan for us. Our house is really OUR HOUSE. Yippee
Short story! 1972 I used my State va loan for the purchase of a 1644 sq. ft. home for $21,000. payment withtaxes was $120. a month. I sold the house in 1979 and got a 2400 sq. ft. home cost me $678. a month house cost $65,000. 3 times more house cost than the first house and payments w/taxes was over 5 times more. what I am trying to tell young people buy your house and KEEP IT it's cheaper in a few years than you can ever imagine. that house today is now worth around $190,000. and the bigger house is somewhere around $250,000. first house 9 times in value 2nd. house @ 4 TIMES. Todays low interest rates are lower than I payed for house #1 and about half the rate of house #2 buy your house and KEEP IT!! you don't have to keep up with the jone's ,make it a home and you will be better off NO MATTER WHAT THE BANKS SAY!!!! it's worth.
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