No, I agree, my point was just that it's easy to say "I wouldn't spend more than $175k on a house" in a place where $150k buys you a decent house. Some places you spend more because that's the cost to live there, not because you are being extravagent.

But this is a separate issue than assclowns buying $600k houses on $40k/yr.

 

Yes, certainly they could have.. but it boils down to the risk of making money now, vs being wise in the long term. Banks and lenders take risks.. they cannot afford to be left behind. And I agree with you. The market must be allowed to balance itself. Those who were unwise will crumble. Others will rise in their place.

 

It applies especially to FHA which is and has been the govt. sponsored B lender for years now. You wouldn't believe how much money you've spent subsidizing FHA loans!!

VA is a special case. For some reason 100% VA loans have always performed better than national norms. That doesn't mean there haven't been probs, just not nearly as many.

Now when you switch sides of the equation and become a buyer 100% looks a little different. It sounds attractive, BUT you always have to buy a house with the idea that you will need to sell that house one day.

Whether you are getting a 100% loan or a 50% loan you will lose $$ if the neighborhood doesn't perform well. The difference is that with a 50% loan (or a 95%/90%/etc.) you may have the option of being able to sell the house and not have a foreclosure and get a judgement against you.

That's one of the big reasons 100% loans fail so often. If you can't afford your house payment you definitely can't afford to pay someone to buy your home.

You will pay more for house if you use a VA loan than if you bought the house with some other financing since the seller has higher costs so keep that in mind. Instead of putting money into improvements why not just buy a house that doesn't need (as many) improvements. Usually that is a lot cheaper anyway. Depending upon what part of the country you are in, you may have your choice of homes anyway.

 

My point was, if I couldn't buy a house for $175K or less, I WOULDN'T BUY A HOUSE on my income! I just wouldn't want to buy much higher. I prefer to live comfortably (even if it means smaller or cheaper things) than stretch to have more but worry more as well. I'd rent and save up, maybe forego buying a new gas-guzzling SUV very two years (like so many people are also doing)...

If I was only making $50K a year, I wouldn't even be considering a new house in most places because you can't get a house in most of the USA for under $125K, new. That family had ZERO right to be buying that much of a house on that small of an income unless they had zero debt except standard bills. They were stupid, or ignorant, or maybe both...

 

My problem is the barrier to entry. I can afford to pay the mortgage on a $250k loan fairly easily. But it would be VERY difficult to come up with $50k for a 20% down payment. I have about 60% of that in the bank, but if I cleaned out EVERYTHING (with no safety cushion, but not touching retirement accounts) I would still be paying PMI, etc, on the mortgage AND I'd have no cash cushion for emergencies. Also, it would not appreciably lower my monthly payment to put down $30k instead of $10k (it's about a $200/mo difference.)

However, if I put a lower amount (or zero) down, I could do some improvements, and perhaps re-fi down the road when I'm making more money, or just start pre-paying my mortgage. My wife and I are both about 3 years into our careers, so our earnings potential is poised to go way up. We are also buying a house with the plan of staying there at least 5, if not 10 years, so it shouldn't be a "2 years and sell" transaction.

[QUOTE]Whether you are getting a 100% loan or a 50% loan you will lose $$ if the neighborhood doesn't perform well.

 

Chris then maybe you'd be better off not buying now.

If you can't or won't put some $$ into the transaction you have severely limited your future options and you might be building a foreclosure into your future. Unfortunately a foreclosure isn't just ONE item on your future credit report, it snowballs and becomes several PLUS it is the worst thing that could be reported AND THEN there is the judgement(s) that can be reported as well.

Who says you have to put 20% down. Do a 90% loan.

With the way they market is changing, once again, the more you put down the better the loan you get and the easier it is to qualify for a loan.

VA has been going thru a number of changes and a few more are on the horizon. Not all of them good. The big issue is that most sellers won't sell their house thru a VA loan and very few lenders will still do VA loans so your options are limited.

As far as your "home improvements" you aren't really talking home improvements, you are talking personal preference items - that's a whole order of magnitude different in $$$. Everyone wants to make changes like paint and carpet. It actually doesn't feel quite like it's yours until you start customizing. In that respect it's like your car.

 

Actually, our goal is to put about $10k +/- down. It's about 5% down, and leaves us a comfortable safety cushion of about $10k, and our investments (the third $10k) are untouched. If 10% down made a significant difference in the mortgage, we could do it, but it would be less comfortable for us.

I still fail to see, other than a forced sale, how putting less money down means I'm more likely to foreclose. Sure, I might take a bit of a bath if I had to sell quickly, but other than that, if I were to lose my job or some other type of hazard, both her parents and mine have the means to float a loan and bail us out in an emergency.

 

Most of the low downpayment foreclosures have come about due to the need for a sale in the first few years.

Even in a good market it takes about 2 years for you to recapture all of your closing costs going in and going out. Out is the most expensive by far. This means that you may have to pay someone to buy your house. The question isn't always can you afford to pay $15-$20k when it comes time to sell it is usually WILL you pay the $$$. That answer is usually no. Either you need the $$ to buy the next house or you simply don't have it.

"A bit of a bath" you say? The willingness to take that bath has been proven to be very low.

If you live there 4-5 years (the national norm) then unless you are in a declining market you usually have the $$$ to sell and a good chunk of profit.

Presently the 10% could make a significant difference. You can have a lower credit score on a 90% loan, you can get more loan types at 90% (which could save you beau coup money), and you will probably get a lower interest rate. All of this can add up big time.

Presently lenders are paying a premium for the loans less likely to foreclose or to have payment probs (which is a much greater problem than foreclosures) so people with downpayments are getting more options.

This is how it has always worked up until a short time ago. We are simply going back to some rules and terms that have stood the tests of time and make sense.

 

Check this out:
[QUOTE]
The almost unbelievable irresponsibility with debt displayed by
homeowners like today's is so amazing, so far beyond any form of
excusable behavior, that you have to wonder if it is right to forgive
it. If someone borrows hundreds of thousands of dollars against their
home and ends up with a short sale requiring the forgiveness of this
debt, how do you feel about it? Remember America's Debtor Prisons or
Are Short Sales Moral? These questions do not go away. Does a really
extreme case change your opinion about the subject? Let's see...

Asking Price: $1,195,000
Income Requirement: $298,750
Downpayment Needed: $239,000
Purchase Price: $397,000
Purchase Date: 7/20/2001
Address: 9 Soaring Hawk, Irvine, CA 92614

Beds: 4,

 

I have no problem saying that I put virtually nothing down on my house (less than 5%). I bought a house at $30K under market value (had been on the market a LONG time and the owners had long moved out and their co-signor was very ticked off), I had no other debt (vehicle or credit card), I had perfect credit in terms of no late payments with a pretty good score, and I bought a home that was half the cost of what they pre-approved me for. I got a great rate as well, so that really helped.

The payment is easily affordable for us, the house is big enough that we can live there forever if we want (and have up to four kids), and my income will only grow in the future, so making the payments should be even easier. I saw no reason to pay it down to get a minorly lower interest payment (0.25%) and not have as much money for renovations or, in my case, medical and vehicle expenses from the car wreck I was in three days prior (not my fault).

In short, it was as close to "zero risk" for them and us as one could imagine in a nation where people typically overextend themself to get bigger and better things.