I have been reading more and more about the push to get rid of mortgage loans where the buyer has less than 20% to put down towards a down payment.
I referenced my own experience in: Creating a Sound Financial Future . With a 20% down requirement to get a mortgage, we would have had to wait years to buy our first home.
It occured to me that besides making homeownership an impossibility for many, this will singlehandedly kill my local real estate market. We are already in trouble since the jumbo mortgage is being phased out Nationwide. This phase out will have big impact on sales of homes in the Washington D.C. Metro Area since so many are priced above the former jumbo loan limit of $729,750. The jumbo limit allows a purchaser to buy a home for approximately $875,000 with 20% down. While some of you may be saying, 'who spends that much on a home?' I can assure you, that is not out of the realm of normal around here!
But back to the talk of eliminating the 20% down...
Doing some informal analysis, I looked one of the zip codes in which I do a lot of work. In this zip code, approximately 67% of the single family homes purchased had a 20% or greater down payment. We had an unusual amount of non-reporting (shows a conventional mortgage, but not the amount of the mortgage), but it appears that approximately 12% of purchasers of detached homes bought them with less than 20% down. That means that over 1 in 10 homes were bought without 20% down. To me that sounds in line with what I would have expected.
I then looked at townhouses in the zip-code, and analyzed those sales. In the townhouse market, the numbers are significantly different. In the zip code I studied, the down payments of less than 20% made up 57% of all purchases. I know you can do the math, but that means that 43% of all homes purchased either did not report financing (12%) or paid at least a 20% down-payment. But that makes sense; people buy less expensive homes when they are earlier in their career and have less disposable income.
If we were to remove these 57% of homes with less than 20% down from the market, a significant number of realtors, lenders, settlement agents, home inspectors, pest inspectors and repair people involved in the real estate market, would not have been working and not have been paid.
In addition, these townhouse sellers would not go on to buy the single family homes on the market in later years; very few people in this area jump straight to the expensive single family homes on their first home purchase.
This brings me back to the proposal that we require 20% down on all mortgage loans; I do not believe that we should determine someone's viability to make a mortgage payment based solely on a single factor (cash on hand).
Policies that protect the real estate market are one thing, but creating a policy that limits a lender's ability to assess and evaluate their client's ability to pay, and which limits a client's ability to make personal financial decision, all while implementing a policy that may well bring the recoving real estate market to its knees, does not make any sense at all!
Why not have a guideline that buyers should strive for 20% down but allow individual lenders to evaluate them as individuals?
To me, this makes the most sense...
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