From Nick at the wsj.com:
Banking regulators are pushing for mortgage-lending rules that require homeowners to make minimum 20% down payments on loans classified as lower-risk, according to people familiar with the matter.
The proposal is being floated as a way to rewrite the rules for mortgage lending to prevent a rerun of the housing bubble and financial crisis that resulted from years of easy credit. The Dodd-Frank financial overhaul law enacted last year enabled regulators to define a so-called gold-standard residential mortgage that would be exempt from costly new rules.
At least three agencies—the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency—back a proposal to require home buyers to put down at least 20% of the sales price in order to obtain one of these “qualified residential mortgages.” One proposal would also require borrowers to maintain a 75% loan-to-value ratio for refinances, and a 70% loan-to-value for cash-out refinances in which the borrower refinances into a larger loan, according to people familiar with the matter.
Mortgage-finance giants Fannie Mae and Freddie Mac would also be exempt from the rules while they remain in conservatorship, according to these people. The U.S. took over the firms in 2008, and the Obama administration has proposed eventually winding them down.
The behind-the-scenes debate over the proposal could have far-reaching implications for how Americans finance loans, because it addresses how much equity new borrowers should have in their homes.
It is unclear whether the proposal will garner support among other regulators and be acceptable to the White House and Congress. Altogether, six federal agencies—the three supporting the proposal plus the Department of Housing and Urban Development, the Federal Housing Finance Agency and the Securities and Exchange Commission—must sign off on the proposal before it is released for public comment. It could not be determined Tuesday whether all the agencies would support the 20% down-payment standard.
At a congressional hearing Tuesday, HUD Secretary Shaun Donovan said no deal has been reached yet, and that any plan could instead spell out options.
At a separate hearing Tuesday, Treasury Secretary Timothy Geithner said, “We’ve got to be careful that we get it right.” He added, “I’m not sure how much longer it’s going to take, but it’s going to take a bit longer than we initially expected.”
Meanwhile, some lawmakers expressed concerns that the new rules might make it too hard for homeowners to qualify for less risky, and less costly, loans.
Sen. Kay Hagan (D., N.C.) told Federal Reserve Chairman Ben Bernanke that several lawmakers “are really concerned about not making it so restrictive that we can’t have as many well-qualified loans as possible.”
The proposal was crafted in response to a provision in Dodd-Frank that aimed to improve mortgage-lending standards. Loans that don’t meet the standards for “qualified residential mortgages” and are sold to investors as securities will be subject to a “risk retention” rule, which could raise borrowing costs for homeowners.
The risk-retention rule requires banks to keep 5% of the value of all mortgages they securitize on their books. During the housing boom, many lenders passed on all of their mortgages, and all of the risk, to investors. It was designed to force lenders to have “skin in the game” when selling groups ofmortgages packaged as securities.
Critics of the risk-retention rule said it could raise costs for traditionally safer lending products such as long-term, fixed-rate loans with full income documentation. A coalition of consumer advocacy groups and the real-estate industry have warned that defining the rule too narrowly could raise borrowing costs for millions of creditworthy borrowers.
Regulators must issue a rule defining “qualified residential mortgages” by April, and had initially planned to publish a draft proposal late last year. But the process has been delayed by a disagreement about whether to include in the rule national standards for loan servicers, such as how to modify loans for troubled borrowers. The new proposal reflects a compromise among the regulators to include some standards for how and when banks modify loans.
I hope they pass it. 20% should be the minimum and I’d be even more pleased with 25% down too.
While 20% down would be good and help prevent bubbles in the future it would be quite the shock if it included first time home buyers as well. The activity in the low end of the market would be cut in half overnight and remain that way for probably 2-5 years as first time home buyers would be forced to save $40-50K for a starter home when they are probably lucky to have $10K saved now and qualify for an FHA loan.
If FHA is still going to exist and the 3.5% still applies for First Time Buyers then maybe things continue to function for awhile, but it’s a guarantee that a 20% down law is going to produce a buying surge of people rushing to get in with more leverage followed by a major decline in sales volume in the low/middle markets. That decline probably works it’s way through the move up markets until you get up to the jumbo range which is dominated by people with money and wouldn’t be effected.
With that said, a 20% down law is good for the long run > 7 years, but painful in the short run.
I have no problem with the 20% rule…as long as current underwater homeowners get zero help.
Either way it doesn’t matter as prices WILL recede and won’t come back. In another decade, the median income in the USA will be lower than it is now, so I find it difficult to see prices ascending unless there’s an all-out building moratorium. And if that’s the case, the amount of down payment won’t matter because the only parties buying homes are those with significant reserves…the rest of us will be renting those homes.
I think the 20% is too much primarily because of first time home buyers. Try to remember when you were 30 or so, maybe had a baby on the way, and wanted to get out of your apartment. So that $450K starter home, (yes, that’s what they cost in California and other areas that are successful centers of business & commerce), that would mean $90,000 down.
10% down would definitely make someone think long and hard about walking away.
Though I’d support 20% down for non-owner occupied.
20% down is great! It will do two things…
1. Lower the number of people able to buy
2. Lower prices sellers can charge
What makes me laugh is bankers are looking for 20% down because they’re now expected to carry 5% of mortgages created on their books. 5% frickin percent! That’s all! The other 95% are garbage loans banks will dump on the government.
I put 20% down as a first time buyer.
I still dispute the notion that $450k is “starter” home pricing. I live in a starter neighborhood and prices average $250k. No way is a young couple going to come up with $90k downpayment for a “starter” house. Where they have a shot is in real starter territory – the $300k and less market.
If you can’t save for a downpayment, there is no way you have the necessary disposable income to deal with a new roof, the water heater breaks down, a drain pipe fails, or any other gazillion expenses that go with owning a house.
What happens when you put people who don’t have the disposable income into a house is deferred maintenance. The neighborhood suffers and the house suffers on the resale, which hurts property values around it. This is precisely why “stretching” to buy a house is such a tragically bad idea.
20% down for non-owner occupied is an idea, but nobody ever checks. It is common practice for investors to lie about owner occupied for the lower property tax rate. Anything that isn’t enforced will be ignored and gamed.
That being said, I’d support 10% down as long as the borrower isn’t stretching financially to buy, and only for first time buyers of homes less than $300k.
Wow,
I never thought I would disagree so diametrically from the comments posted here.
I see nothing wrong with low-down loans. Nothing at all. And, I think, to limit them based on “moral” or some other such garbage is the ultimate in hubris. To limit them based on potential losses… let me ask you, are you a statistician? Do you know the failure rates of various vintages? Do you believe that 30 years of history proves nothing? See, if your money is not at risk, what do you care if it gets lost?
I think they’re great for first time home buyers. I would recommmend every first time buyer use them, as well as buying a newer home without deferred maintenance.
On the other hand, am vehemently opposed to bank bail-outs and government involvement in the mortgage market with implied or explicit backing which caused the real moral hazard. Don’t shoot consumer because banks took bad bets.
Who are we to say who can “afford” a mortgage. I know plenty of people with terrible balance sheets (newly minted surgeons, doctors, and engineers) who have lots of debt, little down payment, but great future earnings potential.
I say let them buy houses, especially now that the bubble is over.
Chuck
“I think the 20% is too much primarily because of first time home buyers. Try to remember when you were 30 or so, maybe had a baby on the way, and wanted to get out of your apartment. So that $450K starter home, (yes, that’s what they cost in California and other areas that are successful centers of business & commerce), that would mean $90,000 down.”
My wife is 33 and I’m 29. We were able to put down 60% downpayment for our home in Carmel Valley and manage to save enough to put 50+% for our investment property. Granted we both are engineers but we didn’t indulge ourselves either.
So, I think 20% should be the absolute minimum even if your a first time homebuyer.
If less than 20%, then a higher interest rate, as is common now. I see no reason for disallowing a lower downpayment.
On the flip side, the bank MUST take all the risk. No more Presidents of either party spending all of our tax money bailing these guys out.
“See, if your money is not at risk, what do you care if it gets lost?”
_______________
Because of the very things you are opposed to – bailouts and govt intervention Chuck. I agree with you – no bailouts or intervention, let the losses be eaten by the lenders/investors/banks/Wall St./etc. etc.
The problem is that bailouts, intervention and manipulation are now standard operating procedure in response to these types of meltdowns. While I too would prefer that the market be allowed to operate without such responses, I absolutely do not trust that will be permitted. And if that is so, then I’m not sure there is a better alternative other than to create rules that will either eliminate or significantly reduce the underlying problem.
If the ultimate choice is to either set more restrictive lending parameters or to shovel trillions of dollars into the bailout furnace, I choose the former.
dacounsalor,
The problem with fighting the wrong war is that the symptoms get treated, and not the disease.
If we don’t stop bailouts but require 20% down on housing … when the next bailout happens, it will be because of a different reason; and we still have a stunted housing sector and people unnecessarily held back (rich get richer).
If the next banking crisis is in government backed education loans, requiring 20% down did nothing to prevent that. But, a few bank failures might prevent a future outbreak of decreased lending standards.
CV Owner,
Pardon me for saying so, but you are quite self-righteous. Yeah, so you’re rich. We get it. Shall we hold a party for you too? Do you need that to feel justified? Your need for attention is quite a turn off; and doesnt’ win friends or influence people, quite the opposite. However, there are plenty of people that through no character flaw have not been able to save 60%… shall we just preemptively thrown them in debtors prison? We can lend a helping hand to those in need without making them dependent on assistance; you may not believe it, but it’s nevertheless true.
Chuck
I know we have a lot of people from out of area here but use this link to check on home sales;
http://www.dqnews.com/Charts/Monthly-Charts/SDUT-Charts/ZIPSDUT.aspx
There are no zip codes in North County, coastal or inland, that have a median home price below $250K except for Borrego Springs and Warner Springs. Nice areas actually too but mostly retirement or 2nd homes. West Vista comes close.
I don’t think you can realistically expect a first time home buyer to have to go into basically a slum.
20% down would only create a deeper pool of renters and concentrate wealth in the form of real estate in fewer hands.
Chuck Ponzi,
I personally like CV Owner’s posts. Both he and his wife saved up money from the jobs they likely earned by attending school / an advanced degree. Then used the money saved to buy a house + an investment property. This is the American/Capitalist way to succeed.
I’m actually for investing in assets. (including housing)
I’m just against corruption and manipulation which the housing market seems to attract like flies on poop.
They’ll keep FHA and VA around, and charge hefty insurance premiums, which is fair.
Buyers will have a choice – save the 20% down payment, or pay what’ll end up being an extra $500 per month roughly on a $500,000 purchase price (having to pay more due to the higher loan amount, plus mortgage insurance).
You’d have to qualify for the higher payment too.
One funky thing about mortgage qualifying is one-size-fits-all. If you had a bigger down payment, say 30% or more, they should consider higher qualifying ratios or give more weight to compensating factors.
But in this conservative environment, no lender will stray from the guidelines.
Around here (North County Coastal) you’re lucky to see a habitable house for $500,000 – we have folks either consider townhouses or go to Vista/San Marcos for under $500,000, generally.
“CV Owner,
Pardon me for saying so, but you are quite self-righteous. Yeah, so you’re rich. We get it. Shall we hold a party for you too? Do you need that to feel justified? Your need for attention is quite a turn off; and doesnt’ win friends or influence people, quite the opposite. However, there are plenty of people that through no character flaw have not been able to save 60%… shall we just preemptively thrown them in debtors prison? We can lend a helping hand to those in need without making them dependent on assistance; you may not believe it, but it’s nevertheless true.”
Sorry but I was brought up to not to spend what I don’t have. I studied hard in school and worked my ass off to get where I am today and now I get to enjoy the finer things in life.
I’m not here to make friends or influence people at all. Just sick and tired of the constant whine about not being able to afford a place in X neighborhood.
I think CV Owner obviously has done well for himself, but the biggest thing to realize is he’s in the very small minority. His peers in CV are probably similar to him but at the county level he’s in the top 5%. Any kind of dramatic push towards bigger down payments is going to limit the buyer pool for anybody who wishes to sell. I think it’s probably a good idea in the long run, but it probably pushes prices down in the short term, just because you’ve limited your potential buyers pool.
While people get their money from various sources the biggest source of a big down is probably going to come from equity in a previous home or a current home. Therefore someone who is looking to move up needs a first time buyer somewhere in the chain unless they want to go the rental route and even then they likely need a new household formation to provide that renter.
“I don’t think you can realistically expect a first time home buyer to have to go into basically a slum.”
Supply and demand. The demand for homes in coastal NC is high, which pushes prices high. First time buyers mostly end up buying in affordable neighborhoods, which ain’t ones with $450k houses. In order to be able to afford a $450k house, buyers need to be in the top 10% of income earners in this country.
The pricing on the CA coast is some of the highest in the country, which is why only people in that top 10% can afford to buy there. I realize that Jim’s target clientele are high earners looking in premium areas, but some of you are delusional in thinking that $450k is a starter. It might be a junker here on the coast, but it’s a junker that the other 90% of the country cannot hope to afford in this lifetime.
Just because we get to look at lovely 4000 sqft mansions on Jim’s blog doesn’t reflect the reality of the rest of the 90% who will lucky if they can afford a dumpy little house in the “slums” (gasp, and have to live with all sorts of minority riff-raff neighbors. Oh the humanity!) in this part of CA.
This is me, signing out from the slums.
“20% down is great! It will do two things…
1. Lower the number of people able to buy
2. Lower prices sellers can charge
What makes me laugh is bankers are looking for 20% down because they’re now expected to carry 5% of mortgages created on their books. 5% frickin percent! That’s all! The other 95% are garbage loans banks will dump on the government”
I really wish you knew more about subjects like this. You do realize that even only a tiny bit of the total outstanding mortgages were/are in any way supported by the government/taxpayer? And if you look at that amount over say the mortgages from the last 10 or 30 or whatever years, then it’s not even rounding error. Please don’t imply that there’s this conspiracy to regularly dump mortgages on the taxpayer whenever anything goes wrong. You’d need another system-wide crisis and massive defaults for that to happen.
BTW, most “bad” mortgage securities are passing losses directly to the holders, including banks, investment banks, and all the other institutions and individuals that bought them (although some of those losses are deductible, which DOES result in the government eating some of the losses).
As for the 20% down, I don’t like it either. The last thing we need to do is to make it more difficult for the country’s young to enter the housing market. I’d be open to a phase-in as the value of the home increases (but that penalizes would-be buyers of coastal areas).
Maybe I missed something, but I didn’t see why the personal attack on CV Owner. While I disagree with CV Owner’s opinion on the 20% down, I don’t get the sense he was bragging.
Aztec,
Check out this link…
http://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program
Or this one…
http://en.wikipedia.org/wiki/Quantitative_easing
Above are just two ways banks pass “toxic” assets onto the taxpayer. (And there are many, many more)
Jeeman,
It wasn’t intended as a personal attack. Let’s call it “constructive criticism”.
Saying “I can do it, everyone should have to do what I was able to do” is pride/arrogance. I think there was once a guy who said “judge not that ye be not judged. For with what measurement ye judge ye shall be judged, and with what measure ye mete it shall be measured to you again.” If nothing, there is room in this world for more compassion; and especially for those less fortunate that have not amassed wealth. Most importantly, some day, CV Owner may be in dire need of compassion and help himself. I’m sure he would sorely miss it if those better off than him turned up their nose at him.
I guess that what I’m saying is that seeing people around me take on too much debt and lose their houses despite my warnings has made me a kinder, gentler Chuck, not the opposite that it has clearly made others.
chuck
@JtR
“Around here (North County Coastal) you’re lucky to see a habitable house for $500,000 – we have folks either consider townhouses or go to Vista/San Marcos for under $500,000, generally.”
Whoa, would you care to clarify? We have been looking in Carlsbad area (not 92011 of course) and the inventory leaves a lot to be desired. I do agree the twinhomes/townhomes are dominating the inventory right now but there are some good SFR showing up around the 450K range. Granted they are nowhere near the coast but still within the Carlsbad zipcodes.
Shadash, thanks for the links but I know a lot of about TARP and QE2. Re: TARP: 1) as I said before, that is a miniscule portion of the mortgages issued/held, and not even rounding error when you consider the issuance over the last couple decades (I would *guess* that >99% of the losses from MBS have been taken by direct holders of the securities, whereas you seem to imply that anyone with a losing security need only step up to the TARP program and receive par value…Shadash, TARP has been relatively narrowly applied).
As for QE2, uh, look into the actual securities that have been purchased. Hardy toxic. The Fed generally buys treasury securities, not what toxic junk a bank wants to pawn off. If you’re interested in some education, dig a bit into what the Fed holds (look up the SOMA, the System Open Market Account, then assess for yourself what proportion of the mortgages held might be subject to some fraction of losses in the future).
I know you want to think there’s this huge conspiracy cooked up to steal money from taxpayers, keep you from being able to buy the house you want at the price you want, etc., all the while enriching the banks. While there’s PLENTY of fraud and corruption out there, I’m sure it’s far less organized and well planned than you think. It’s a buncha jerks like Mozillo, and then a government that is trying to figure out how to optimize the interests of all of society over the long run. And hey, I’m a big/medium government hater who hates taxes and wanted to see a LEGIT real estate crash, so if anyone thinks I’m soft on the gubmint, think again!
“Whoa, would you care to clarify? We have been looking in Carlsbad area (not 92011 of course) and the inventory leaves a lot to be desired. I do agree the twinhomes/townhomes are dominating the inventory right now but there are some good SFR showing up around the 450K range. Granted they are nowhere near the coast but still within the Carlsbad zipcodes.”
I guess your looking in 92008? Because there’s absolutely nothing in 92009 or 92011.
“If nothing, there is room in this world for more compassion; and especially for those less fortunate that have not amassed wealth. Most importantly, some day, CV Owner may be in dire need of compassion and help himself. I’m sure he would sorely miss it if those better off than him turned up their nose at him.”
I wouldn’t let myself get into that situation in the first place and I would not be begging anyone to help me out at all. I got myself into and I should get myself out. Simple as that.
“I guess that what I’m saying is that seeing people around me take on too much debt and lose their houses despite my warnings has made me a kinder, gentler Chuck, not the opposite that it has clearly made others.”
And that is what got us here in the first place. People spending more than they can afford.
Aztec,
The tax payers will never see the money that was sunk into Freddie/Fannie and AIG. Freddie and Fannie are absorbing the bulk of the losses and there isn’t much news about it. US government gave AIG a bunch of money to pay off CDS at par to the banks. It’s just been a smoke screen for the most part. Look the banks paid the TARP money back everything is fine, yet $300 billion between AIG and Freddie/Fannie isn’t mentioned at all.
“Since the financial crisis began, Fannie Mae and Freddie Mac, which buy and insure mortgages, have needed $150 billion in support from Uncle Sam. Now, the US Treasury is exploring ways to wind down its involvement with the mortgage giants.”
“Both Fannie and Freddie have a combined debt of $5 trillion, most of it secured by actual mortgages. Some $1.5 trillion is not secured but considered to be guaranteed by the US government.
Pollock says a significant amount of the debt is held by foreign investors. “Bonds were sold all over the world and the investors were told it was the same as buying a US Treasury bill but you get a higher yield,” says Pollock.
Although the shareholders of Fannie and Freddie lost their entire investments after the government took them over, the bond holders have had no losses.”
http://www.kplctv.com/Global/story.asp?S=14027974
We have over 200 years of American precedent in the government providing bailouts and “they” are never going to stop. Never. Never is a long time. The only hope of avoiding bailouts is to regulate the underlying subject matter before it turns into another meltdown and another massive bailout.
I think it should be based on region, not a flat 20% per National Standards. However from a general standpoint, 20% should be the baseline.
I think 20% min once prices per region hit a certain tier. This will offset a firs time homebuyer from getting in over their heads above 500k or 100k down at 20%.
Some of the implied economic arguments here don’t make any sense to me. If starter couples are no longer able to afford starter homes, who’s going to buy the starter homes for those unaffordable prices? Nobody will. So prices will fall until the starter homes will be affordable to the starter couples. It’s not like little shabby homes are just going to set on the market forever at $450K if no one can afford to buy them.
Not to mention, it’s not that 20% down will be a requirement. It’s that 20% down will be a requirement for loans classified as lower risk. Presumably low-risk will be cheaper in some way. When we bought our place a few years after I finished school, we put 10% down and paid PMI for a number of years. Once we crossed the 20% threshold the PMI was canceled. How is that any different?
I think the 20% down *for the purposes of classifying low risk loans* makes perfect sense. If you want to help consumers and starters, make it so that the loan cost switches back to the low-risk cost after they cross the 20% equity mark, instead of being locked in forever. That way you’ll get incentive to build equity in your home too. You hit the house ATM, you don’t switch to the lower cost loan payments.
Dwip nailed it.
The argument that 20% is too high given current home prices completely ignores the fact that home prices wouldn’t be so damned high had everyone purchased with 20% down.
A market — absent false incentives — will achieve a balance that enables it to function, serving the greatest number of people. There is no “priced out” (unless you’re talking about something truly limited, such as beachfront).
Unfortunately for most current homeowners, that balanced market is a bit south of current levels.
Actually the 20% down for low risk is very much a back to the future idea. Way back in 1978 when I bought a house in Houston, below 20% down you had to buy private mortgage insurance (it had not imploded back then). Builders and the like were offering 5% down with the PMI. If this came back as noted you will get the lowest rate at 20% down, but a higher rate to pay the insurance premium at a lower down level.
Also as implied if house prices are so high in North San Diego county perhaps jobs will migrate out of California to counteract this. (Or perhaps to Susanville or Yreka )
Putting a 20% down payment at a minimum is a good idea. In fact this is what I told my wife a few years ago.
If the standard market loan was 20% down 30 year fixed, then we wouldn’t have had the housing bubble. Why? Because there wouldn’t be the same excess leverage in the system pushing prices up.
A 20% down payment isn’t that horrible. What do you think our parent’s put down on their first homes…
How would new home buyers come up with a 20% down payment? The same way they did in the past: work hard (volunteer for overtime/work two jobs, etc), save money, and borrow from their parents.
At the end of the day, higher down payments will likely make housing MORE affordable.
DWIP wrote:
Some of the implied economic arguments here don’t make any sense to me. If starter couples are no longer able to afford starter homes, who’s going to buy the starter homes for those unaffordable prices? Nobody will. So prices will fall until the starter homes will be affordable to the starter couples. It’s not like little shabby homes are just going to set on the market forever at $450K if no one can afford to buy them.
——————–
Exactly.
People won’t need $100K down payments on $500K starter homes, because with a 20% down payment requirement, starter homes will be priced at levels where “starter” families can afford them and their 20% down payment requirement.
The higher down payment requirements are sorely needed. OTOH, in order to prevent starter neighborhoods from becoming “renter slums,” I would require a 30% down payment on investment properties, and would eliminate Prop 13 protection and MID/property tax deductions on investment properties so that first-time buyers would have an advantage over “investors.”
I support CV Owner. But I do not feel 20% should be the minimum DP. If higher lending standards were implemented then lower interests rates for lower risk borrowers should be in order. I shouldn’t be penalized because many lived beyond their means. And I certainly shouldn’t be penalized because nice guys decided to help those who would have never qualified for a mortgage, get a home. I guess, I’m a two time loser. In the mean time, what should I do with all this cash we’ve been saving 😀
CA Renter-
Why would they eliminate interest tax deductions on Rental Properties? It is a legitamate expense. I can understand the argument to eliminate interest deductions on primary residences, but NOT on a rental properties. It would be discriminatory as other businesses would still be able able to write-off interest expenses.
I don’t see a problem with zero down loans per se any more than I see a problem with junk bonds. But they need to be rated appropiately as risky securities if they are sold. The root cause of the problem here was the rating agencies over rating the loan packages, not the loans themselves. Of course, had the rating agencies rated them properly, there would be a very small market for said securities (and prices would be lower)-but that’s what should have happened. The lower costs of what a buyer would be willing to pay for them if they were properly rated would discourage a lender from making such loans except at a very high interest rate and/or with extreme care in checking out a buyer’s ability and willingness to pay what they owed.
First-Time buyer programs (many gov’t backed) are in existance, and investors are already held to MUCH higher standards than other buyers–30% has been the norm for some time, and qualification is rigorous. Also, in order to favor owner-occupants, many banks will not take an offer form an investor for the first 15 days market time on their REO’s.
The 20% down baseline is a good idea. As David O said, we wouldn’t have gotten so deep in this mess if it had been the standard.
To achieve 20% down is no small feat. I’d like to see a quasi-IRA program specifically to save 20% towards the down payment in a tax free/deferred manner. Perhaps tax those funds when/if the house is sold or a cash-out refi is done.
Unlike current IRA’s, make it simple, easy, clear, and it would be great. Otherwise, you have to actually save 40% to net 20% “post tax” to get your first home. Almost like depositing money every paycheck into escrow for a few years towards your downpayment.
New rule:
A lender can only sell on the secondary market their purchase loans with 20% down payment, or refis with 30% equity.
If they want to lend more than that, they originate a second mortgage and keep it in their portfolio.
They’d be free to charge a higher rate, and qualify borrowers however they feel.
@24 “I do agree the twinhomes/townhomes are dominating the inventory right now but there are some good SFR showing up around the 450K range. Granted they are nowhere near the coast but still within the Carlsbad zipcodes.”
Nothing in South Carlsbad (92011 or 92009) for 450k … perhaps you are looking in 92078.
92011 is already out-of-reach … you might find just habitable SFR in 92009 for 600k at the lower end. If you want Carlsbad only then try 92010 you might get lucky with Mid 500s.
I did some rough calculations and it looks like a 20% down straight out of college with an average job and average college debt would take about 4 years to build up, and that’s if you live really frugally. This budget would eliminate vacations, going out often, etc. In my opinion this is the buying a 5% per year for the first couple of years. I figure most people can go from 50K to 60K in the first 4 years.
Year 1
50000 Gross Income
3000 6% retirement – Typical Match Plan
35250 25% effective tax rate in CA
2937.5 Monthly Take Home
800 rent
200 gas/maint
200 car payment
200 food
100 cell phone
250 College Debt (25K over 10 year payment)
30 Utilities
100 Cable/Internet
1880 Total Expenses
1057.5 Savings per Month
12690 Savings for the Year
“In my opinion this is the buying a 5% per year for the first couple of years.” This sentence got messed up somehow.
Should read.
In my opinion this is the buying a starter home around $250K is the most important thing to me plan.
CV Owner.
Pride goes before destruction. A haughty spirit before a fall.
That is all. I have nothing more to say.
I’d be willing to consider Jim’s thoughts:
“A lender can only sell on the secondary market their purchase loans with 20% down payment, or refis with 30% equity.”
Let’s go back to having portfolio lenders.
I seem to remember something about how there used to be a rule that a bank could only lend money for RE that could be seen with the naked eye from the highest point in the town.
As for #41, livingincali, there was a post a year or two ago and I commented that I lived in Silicon Valley right after college and saved $1000/year from the start.
How? – roommates, eat at home, realistic entertainment expenses.
[oh and starting salary at a tech company in the mid-90’s wasn’t yet $50k.]
If down payments were higher and credit more difficult to attain, people would likely value their HOME as something they really earned and fight hard to keep it from foreclosure.
On the other hand, if low/no down payment were required, the HOUSE and loan would more likely be viewed as an option on the future appreciation.
Isn’t this what the past few decades made clear?
CA Renter-
Why would they eliminate interest tax deductions on Rental Properties? It is a legitamate expense. I can understand the argument to eliminate interest deductions on primary residences, but NOT on a rental properties. It would be discriminatory as other businesses would still be able able to write-off interest expenses.
Local Boy | March 4th, 2011 at 7:26 am
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Buying up houses so that poor people can pay off your “investments” for you is not “business.” (And I come from a family of RE investors and brokers)
I think people need to view houses as shelter, not “investment” opportunities. Apartment buildings, I might go along with, but not SFHs. There is no benefit to having neighborhoods filled with rentals.
Believe it or not, I’m a huge fan of home ownership because it really does tend to get people to invest more time and money in their communities, and under normal circumstances, the houses are better maintained.
Most importantly, I think it’s important for people to have a paid off house before retirement. Owner-occupiers should not have to compete with “investors.” I wish these “investors” would find something useful to do with their “talents.” Owning rental properties, while requiring a lot of work, is not “productive.”
We need to get away from relying on “investments” for income, and get back to working for an income. And I’m as guity as anyone, BTW.
Good ideas, Jim and clearfund, in #38 and #39.
“We need to get away from relying on “investments” for income, and get back to working for an income. And I’m as guity as anyone, BTW.”
Why? This makes no sense. My mom should come out of a comfortable retirement, living on dividends, and start working at Walmart again?
You should realize that providing money as investment provides more shelter and jobs for people. Without investment money, jobs dry up, and shelter construction grinds to a halt. This is the reason why our corrupt government bailed out bankers.
CA Renter–Why not just make it illegal for someone to buy a rental property? Did it ever cross your mind that some tenants simply can’t afford to buy (yet) and don’t want to live in an apartment building. You’re handle indicates that you rent–do you live in an apartment or a house?–just curious. BTW–I have rented several houses before or in between buying because I preferred to live in a house–thank goodness for my landlord!
I put down 40 percent for my first place. It isn’t that hard to save. 20 percent forces the buyer to have some “skin” in the game. With CV owner on this one.
Jeeman,
I don’t have a problem with retirees living on investment income after a life of working. I DO have a problem with the top 1% of the wealthy living off of the backs of working people.
Money as an investment only works if that investment ends up providing goods or services that people need and can afford. As it stands, too many people (including myself) are buying and selling assets back and forth at ever-increasing values. That is NOT productive investing, and it only drains our economy of money that could be used for far more productive things.
Additionally, the input costs (land, labor, building materials) go down as speculative money is wrung from the market. We need enough money to build houses for those who need them, but we do not need money to build spec McMansions for those who are looking for “investments.” We can still build houses, and we can do so for far less money. I’d like to see the return of **affordable housing** (via low prices, not gimmicky mortgages or low cost of credit) for working people.
Local Boy,
We live in a SFH, and love it. Most of my years as a renter (even younger days before the purchase of my house) were spent in a SFH.
In both cases where I lived in a SFH (current rental, and one lived in during the early-mid 90s)), I wanted to buy the rental. Because of Prop 13 and other favorable tax treatment, my landlords had/have no incentive to sell.
I would much rather own my current house than rent it. I believe that a person’s right to own a house trumps a landlord’s right to make a profit at the expense of these renters.
If you want to “invest,” buy things that other people don’t need (like stocks or bonds). IMHO, commodities and housing should be off-limits to most investors unless they abide by very strict regulations that prevent them from restricting the supply of essential goods that are in high demand.
CAR, I’ll just tackle the one issue you brought up about speculation in housing (and it applies, actually, to all commodities). When you have speculation, builders (producers) jump in to take advantage of the high prices. This usually leads to oversupply. In 2008, oil prices were $145/barrel and collapsed to $30/barrel later that year. House prices would have been lower were it not for the government picking winners and losers.
Believe it or not, when you smooth out the high price spikes, it actually leads to more of the commodity.
The converse is true. Price controls, done under the Republican Nixon, so he can be compassionate towards the under-privileged, backfired. When you restrict the amount of profit a producer can make, they just move onto another product that they can produce, leading to less supply. Shortages come as a result.
This is an extreme example, but if you legislated that all home builders made $0 profit, because housing is a basic right, and profit is evil, then homebuilders would move onto building other things, and you will end up with millions of homeless people, or (marginally better) government-built projects (we all know how successful those are).
When I said “smooth out”, I meant that over time, that commodity takes up less and less of the income, provided that there isn’t a relatively finite supply.
Jeeman,
Yes, I understand how rising profit margins bring in more supply, but it all too often leads to volatile booms and busts that can cause tremendous damage to our economy. I’m not at all saying that profit margins for builders needs to be lower (I think they do, but don’t think we need to regulate that). I think profit margins for speculators needs to be lower.
I don’t mind investment on the supply side (invest in home builders, or better building or farming technology, etc. that will increase productivity or crop yield and bring down costs while not having to increase prices to consumers…and still be able to make the same margins).
I do mind “investment” (which is really speculation and market manipulation) on the demand side.