You know why 20% down was a good idea? Because housing prices fluctuate.

Other than rare circumstances, if you have 20% down, you aint going under water. And the recent rare circumstance in the US wouldnt have gotten that out of control with 20% down requirements.

Twenty percent down isnt that farking hard of a requirement either, especially if you buy small for your first home.

I bought a condo at age 29: 20% down.
I moved up to a house at age 38: 49% down.

Rev.K

Why would a first time home-buyer buy an average house?

If you buy at, say 2.5 times your income (good rule of them for a max), then 20% down is .5 times your income.

Saving 10% towards downpayment means it takes 5 years.

rule of thumb. No idea what a "rule of them" is.

Rev.K: Sorry, the average Calgary home price is actually $466,488

So at 20% you only need $93,297

Piece of cake.

This is exactly why 20 percent should be required. $466k is an absurd price for a median house. Stretching loan requirements to let people "technically" qualify for a loan on a house they can't actually afford (and not just in the subprime market) was the single biggest contributor to the 2008 crash. In places like Calgary, housing prices must come down, not be supported via dubious loans and government subsidies.

Amateurs! 0% down with a 125% mortgage is the way to go! It worked in the USA!

SusanIvanova: This is exactly why 20 percent should be required. $466k is an absurd price for a median house. Stretching loan requirements to let people "technically" qualify for a loan on a house they can't actually afford (and not just in the subprime market) was the single biggest contributor to the 2008 crash.

The single biggest contributor was the fact that the people giving out the loans were assuming none of the risk because they were immediately selling them off, which led to them lowering lending standards in the ways you mention.

If the lenders had to actually hold the loans themselves, you would see much more stringent lending requirements.

Rev.K: Tjos Weel: Twenty percent down isnt that farking hard of a requirement either, especially if you buy small for your first home.

Average home price in Calgary: $482,000.

Downpayment required at 20%: $96,400

How long would it take you to save $96,400?

Average price in bromley (a real craphole subburb of london) $550,000 - price in a nice area (like fulham) $1,300,000

Even a crap area would require a deposit of $27,500 for 5% - that is a lot of money to save up.

/right thread

Rev.K: Tjos Weel: Twenty percent down isnt that farking hard of a requirement either, especially if you buy small for your first home.

Average home price in Calgary: $482,000.

Downpayment required at 20%: $96,400

How long would it take you to save $96,400?

If it takes too long for you, you can't afford the payments.

Rev.K:
Sorry, the average Calgary home price is actually $466,488

...and if there was a 20% down payment requirement, the price would be under $200K.

It was only when those requirements started to disappear that the home market went crazy. Sure, the poor folks could "afford" homes (until the balloon payments hit), but the people with more money suddenly found out that they could walk into a house that cost a lot more with the same down payment.

Those crazy Brits. Next thing you know they'll offer an $8000 tax credit to prop up activity prices.

SusanIvanova: Rev.K: Sorry, the average Calgary home price is actually $466,488

So at 20% you only need $93,297

Piece of cake.

This is exactly why 20 percent should be required. $466k is an absurd price for a median house. Stretching loan requirements to let people "technically" qualify for a loan on a house they can't actually afford (and not just in the subprime market) was the single biggest contributor to the 2008 crash. In places like Calgary, housing prices must come down, not be supported via dubious loans and government subsidies.

This.

When people are only thinking about what their monthly payment is, they're willing to pay a lot more for something. This is why car ads no longer advertise the sale price but rather the monthly payments. Of course it's worse with houses because people think they'll be the outlier and make a killing on the deal when they go to sell it.

Xai

Average price in bromley (a real craphole subburb of london) $550,000 - price in a nice area (like fulham) $1,300,000

Even a crap area would require a deposit of $27,500 for 5% - that is a lot of money to save up.

As said above, if you cant afford to save up the downpayment, you cant afford the home.

You shouldnt be buying an average home in Bromley unless you make about 220k. 500k for Fulham.

2.5X annual income, its only a rule of thumb, but its damn good. And with that rule of thumb, 20% down isnt hard to come up with.

If there arent enough Brits making 500k to buy in Fulham then one of three things will happen:

1. Prices will drop
2. They will build cheaper housing
3. Lots of stuff will go vacant (which will lead to #1 and #2)

There is a 1500 sq ft, 3 bedroom, 2 bath, attached garage, huge enclosed deck on the back, large yard house on my street listed at 149k (just lowered from 159k, an offer of 140k probably gets you in tomorrow). It was built in 1952 and the kitchen looks like it was designed then, so that might need some work, but house is in good shape.

If you live somewhere expensive: MOVE!

SchlingFocker

Im a libertarian, I dont think there should be a law against anyone buying with as little or as much down as possible, but I still think banks should be asking for 20% down. And it would have been no problem for you to make that happen.

The problem is with only $5k, a fluctuation in the market puts you underwater. It isnt that you cant make the payments, its that banks dont want to be in a situation that if you DONT make the payments, they are boned. This isnt about the individuals as much as the banks. The banks shouldnt allow themselves to get in this situation.

And I dont want any government guarantee programs. Moral hazard.

If you can't save 20% you can't afford the house. The end.

Additionally, 1500sq feet is only going for 500k because there are morons that pay it. Everyone should be required to live in the midwest for 2 years before moving to one of these markets. 500k will get you 5000sq feet (high end finishes/appliances) on 5 acres out here. You'd only be looking at about a 10min drive to downtown...

Tjos Weel: Xai

Average price in bromley (a real craphole subburb of london) $550,000 - price in a nice area (like fulham) $1,300,000

Even a crap area would require a deposit of $27,500 for 5% - that is a lot of money to save up.

As said above, if you cant afford to save up the downpayment, you cant afford the home.

You shouldnt be buying an average home in Bromley unless you make about 220k. 500k for Fulham.

2.5X annual income, its only a rule of thumb, but its damn good. And with that rule of thumb, 20% down isnt hard to come up with.

If there arent enough Brits making 500k to buy in Fulham then one of three things will happen:

1. Prices will drop
2. They will build cheaper housing
3. Lots of stuff will go vacant (which will lead to #1 and #2)

average house price in britain atm is $380,000 - (rightmove.co.uk) and i can tell you the average wage is NOT $152,000/yr

They are not building houses - that is the main problem and why houses are not dropping in price - people have no choice but to either pay extortionate rents or live with parents etc. $3200/month studio flat$30,000/month for comparison (new window)

SchlingFocker: AcneVulgaris: If it takes too long for you, you can't afford the payments.

We went the route of a VA loan for our house, and we only brought $5k to the table to purchase our home.

We're in the six-figure income range, and we are very comfortable making our mortgage payments.

What we didn't feel like doing was spending another year throwing away money on a rental once we made the decision to buy.

It's pretty much a no brainer.

As are you. Lets talk again next year when you've lost twice that year's rent in interest, property tax, and depreciation.

xtragrind: If you can't save 20% you can't afford the house. The end.

Additionally, 1500sq feet is only going for 500k because there are morons that pay it. Everyone should be required to live in the midwest for 2 years before moving to one of these markets. 500k will get you 5000sq feet (high end finishes/appliances) on 5 acres out here. You'd only be looking at about a 10min drive to downtown...

Houses are cheap in the midwest because tornadoes blow half of them away every year. With job security like that, contractors can afford to be generous.

Tjos Weel: The banks shouldnt allow themselves to get in this situation.

Most of the people giving out loans aren't "banks" due to Gramm-Leach-Bliley.

They "allow themselves to get into this situation" because they don't own the loans so they don't carry the risk.

If banks actually had to hold loans they issue, you would see more stringent lending requirements. But this would mean increasing government regulations on lending, and I assume I know how you feel about that.

Xai: They are not building houses - that is the main problem and why houses are not dropping in price - people have no choice but to either pay extortionate rents or live with parents etc. $3200/month studio flat$30,000/month for comparison (new window)

And if anyone read TFA, They would know that the whole point of this is to encourage new home building in England.

SusanIvanova: This is exactly why 20 percent should be required. $466k is an absurd price for a median house.

No, $625,509 (new window) in Greater Vancouver is an absurd price. Oh, you wanted an actual (detached) house, not a duplex or an apartment? That will cost you $889,907.

Median household income for Vancouver seems to be about $68k... times 2.5 is $170k. Go to www.mls.ca and see what that will get you around here. It's a bit better than living in a cardboard box in the alley, but it's still far short of a mansion (new window).

Tjos Weel: Why would a first time home-buyer buy an average house?

THIS. If all first-time buyers purchased the average home it wouldn't be average anymore. Most first-time buyers buy on the lower end of the price distribution largely because they do not have to save as much as they would buying the avg house. Plus households of 1st time buyers are typically smaller than repeat buyers.

The Homer Tax: Xai: They are not building houses - that is the main problem and why houses are not dropping in price - people have no choice but to either pay extortionate rents or live with parents etc. $3200/month studio flat$30,000/month for comparison (new window)

And if anyone read TFA, They would know that the whole point of this is to encourage new home building in England.

I did read the article, my point is that they need massively more houses in the UK. prices are insane.

I see some people get it and others still don't.

Housing prices are set by demand and purchasing power, not by some objective measure of value. The banks would love you to believe they are helping people into homes they couldn't afford otherwise, but their real motivation is the perpetuation of inflated real estate, for a couple reasons. The obvious reason is because that creates demand for their services; lots of prospects for mortgage slaves. The not so obvious reason is because all their REO is probably on the balance sheet at inflated prices which they would have to mark to market in the event of a significant drop in prices.

Home prices can and will come down even further. I say this as a homeowner with no mortgage.

Xai: I did read the article, my point is that they need massively more houses in the UK. prices are insane.

Oh yeah, it wasn't a comment on you. I was using your post to explain why the British government was doing what they're doing.

They're attempting to stimulate new house development by offering banks incentives to lower lending requirements on new house mortgages through a government backing of the loans.

The problem isn't that down payment requirements were too high. Cutting them to 5% is fine, so long as people have the means to pay. The real problem were the ARMs and the fact that there were no income checks. Lots of people are right out of school and just got hired and want to buy a house and have a good paying job, but don't have $30,000 cash on hand.

AcneVulgaris: Rev.K: Tjos Weel: Twenty percent down isnt that farking hard of a requirement either, especially if you buy small for your first home.

Average home price in Calgary: $482,000.

Downpayment required at 20%: $96,400

How long would it take you to save $96,400?

If it takes too long for you, you can't afford the payments.

Let's be even clearer: If it takes one person in a couple long to save up for the 20%, you can't afford it, in today's day and age, as most peoples' jobs are not secure. Unless you really have 1 - 2 years worth of all bills in some accessible account saved up as well.

The problem is a lot of people look at 20%, save up, then spend the entirety of their cash in a non-liquid asset. Then the first emergency wipes them out.

If you actually have an emergency fund (no, I don't think it has to be cash sitting in a POS savings account), maybe go for it -- otherwise don't waste your money on a home, as you're making an incredibly poor financial decision.

Yes, this is also your obligatory, "I was telling you all buying expensive homes was stupid and would cause you to lose everything you had before the housing crash" biatching of the day. :)

/bought a place for 1/3rd the median home value in our area, economy collapsed, lost > 30%, wasn't really destroyed; got to save for a much nicer place
/// unless you are getting a cheap ass place, RENT -- it is ALWAYS CHEAPER for like size places once all fees/taxes/HOA/Repairs are accounted for. Anyone telling you otherwise is a liar or a salesperson.
////If you are actually buying a place to live in for the rest of your life that is best for your family and life, then just be sensible -- don't care if you overspend a little in that case -- since you're getting a home, not a bad investment.

AcneVulgaris: SchlingFocker: AcneVulgaris: If it takes too long for you, you can't afford the payments.

We went the route of a VA loan for our house, and we only brought $5k to the table to purchase our home.

We're in the six-figure income range, and we are very comfortable making our mortgage payments.

What we didn't feel like doing was spending another year throwing away money on a rental once we made the decision to buy.

It's pretty much a no brainer.

As are you. Lets talk again next year when you've lost twice that year's rent in interest, property tax, and depreciation.

Err, he wouldn't have lost anything. He's paying a fixed amount for the next 30 years. If he can afford it and WANTS to pay it(which he clearly does), what does it matter? And, of course, in 30 years he'll be so far on top of the rent/own comparison from just natural inflation alone that your one year comparison will be a joke.

I really don't understand why people have a problem with someone saying "I can afford this, so I will buy it." Home values aren't set by the market, they're set by the buyer agreeing that a house is worth that value. Once the buyer says this house is worth $x and I am willing to pay this amount, who gives a fark if it goes upside down?

Tommy Moo

Lots of people are right out of school and just got hired and want to buy a house and have a good paying job, but don't have $30,000 cash on hand.

You dont need to buy a house just out of school. Renting for a year or two isnt a bad thing at all. With a good income it doesnt take too long to save up 30k. With two good incomes, its even easier.

I futzed around in my 20s. Between grad school and living in Europe and a year of underemployment (not in that order) I wasnt gainfully full time employed with a serious, well-paying job until I was 27. And I had 20% down ($23k) at age 29.

who gives a fark if it goes upside down?

The bank, if you stop paying.

And by "bank" I mean whoever owns the mortgage at that point in time.

Its not about ability to pay as much as protecting the "bank" against normal fluctuations in the housing market. 5% fluctuations are normal. 20% arent.

Tjos Weel: Tommy Moo

Lots of people are right out of school and just got hired and want to buy a house and have a good paying job, but don't have $30,000 cash on hand.

You dont need to buy a house just out of school. Renting for a year or two isnt a bad thing at all. With a good income it doesnt take too long to save up 30k. With two good incomes, its even easier.

I futzed around in my 20s. Between grad school and living in Europe and a year of underemployment (not in that order) I wasnt gainfully full time employed with a serious, well-paying job until I was 27. And I had 20% down ($23k) at age 29.

Yeah, but houses are cheap right now. I bought mine because I was fortunate enough to be able to save a bit during grad school and get in with a federal program that let me buy with only 6% down. If you told me I had to rent for a year or two, that might be enough time for prices to shoot up by 15 or 20%. Probably not, but who knows? I know they certainly can't get any lower than this.

Tommy Moo: Lots of people are right out of school and just got hired and want to buy a house and have a good paying job, but don't have $30,000 cash on hand.

Those people should rent for a few years while they save money for a down payment. The first few years out of school are likely to involve changes in jobs and/or lifestyle, and if you have to sell a house the fees and commissions can wipe out any equity you built up in the first years of paying off a high-ratio mortgage.

Tjos Weel:
1. Prices will drop
2. They will build cheaper housing
3. Lots of stuff will go vacant (which will lead to #1 and #2)

Actually it's more
prices drop
some houses go cheaper
these are purchased as flippers or buy-to-let
first time home buyers still have a hard time getting anywhere

we make about £80k between us which isn't bad for this area. And now finally after living together for 3 years have enough for a 10% deposit on a small, cheap home. The 5% down on new homes isn't anything new. But, I've seen and rented in a "new home" and around here, I wouldn't trust the build quality to last for the 50 years we plan to spend in our home.

I've rented all my life, I don't mind renting, but I'm very tired of having to ask permission to have pets, and never being able to do something like, replace the manky bathroom carpet (seriously, friggen carpet in the bathroom) or put better insulation in the walls, or paint the place.

Tommy Moo

I know they certainly can't get any lower than this.

Famous last words.

You might be right, this might be the bottom, but I wouldnt bet on it.

Look, my problem isnt with you or Focker. This isnt about the consumer. This is about the seller/guarantees. "Banks" should be protecting themselves and the federal program you used shouldnt exist. End federal guarantees and bailouts and if banks want to gamble with 125% loans, not my problem. But if Im loaning 6 figure dollars, I want to know that the collateral isnt going to go underwater.

Nobody can force a lender to give a mortgage they're not comfortable with. If the risk of loss is too high, they just won't lend. Problem solved.

H31N0US: I see some people get it and others still don't.

Housing prices are set by demand and purchasing power, not by some objective measure of value. The banks would love you to believe they are helping people into homes they couldn't afford otherwise, but their real motivation is the perpetuation of inflated real estate, for a couple reasons. The obvious reason is because that creates demand for their services; lots of prospects for mortgage slaves. The not so obvious reason is because all their REO is probably on the balance sheet at inflated prices which they would have to mark to market in the event of a significant drop in prices.

Home prices can and will come down even further. I say this as a homeowner with no mortgage.

Bingo.

A house is worth what someone will pay for it, and it's intrinsic value of shelter and the possibility of income potential (rent out a few rooms or rent out the entire place).

The same house on my block 35 yrs ago sold for 78k. This year it sold for 289k. Not much has changed in those thirty five years, the house still offers shelter and still have the same amount of rooms that can be rented out. It will cost you almost 4x as much now to get into it though.

Eventually the price of this house will come back down again. Will it be a deal at 150k? Maybe. But at 289k the banks are much happier if you buy it as there is almost no doubt you will need to be indebted to them to do it. The couple that bought the place all those years ago for 78k probably did not make the banks much money, despite the house offering the same benefits today as it did back then.

Basically the higher the home prices become and the more out of reach they are on the affordability scale, the better for the banks, period.

thisone: Actually it's more
prices drop
some houses go cheaper
these are purchased as flippers or buy-to-let
first time home buyers still have a hard time getting anywhere

This is what I've been seeing for years, and it will continue to happen as long as there are Boomers that have enough equity to retire or people with enough cash to buy a house to rent(pretty easy for a lot of upper middle class wage earners in the LA area since they make at/over 1/2 yearly what these houses go for).

In the Los Angeles area, it is fairly routine for people to go to the Inland Empire/High Desert/Santa Clarita regions and buy a house for cash. These houses cost 1/3 what they do in Los Angeles and Orange Counties. Some of the areas have commuter rail access(parts of IE and Santa Clarita) in to Orange and LA Counties, many of them have good schools, and many of the houses are newer and nicer than the older suburban core areas. I know plenty of people personally that bought their LA/OC house pre-boom, sold it(still worth 2-4x more today than 1999), and bought a house for cash in one of these areas to retire in or even just commute from. I've went to compete on some of these houses and anything halfway decent is gobbled up from a cash buyer within 3 days of listing. Everything else is a fixer or overpriced. Starter homes are gobbled up by cash investors to rent(Boomers don't retire to starter homes, in my experience).

SchlingFocker: bhcompy: Err, he wouldn't have lost anything. He's paying a fixed amount for the next 30 years. If he can afford it and WANTS to pay it(which he clearly does), what does it matter? And, of course, in 30 years he'll be so far on top of the rent/own comparison from just natural inflation alone that your one year comparison will be a joke.

I really don't understand why people have a problem with someone saying "I can afford this, so I will buy it." Home values aren't set by the market, they're set by the buyer agreeing that a house is worth that value. Once the buyer says this house is worth $x and I am willing to pay this amount, who gives a fark if it goes upside down?

I pretty much agree with this. The value of our home to us doesn't change based on what the home's market value says. It was worth price $X when we bought it, due to location, style, size.

It will continue to be worth price $X to us even if the market value drops by half.

The only ones who should care about houses being upside-down are people looking to sell and, as TJOS pointed out, the mortgage-holders.

That is a good attitude to have as long as you are not going to be under water on the place. The floating value of what you "could" fetch if you wanted to divest yourself of the property is moot to you if you plan on living in the house for the next X amount of years.

Additionally, if you made the purchase with living there for the long haul in mind then paying a bit more to get what you want to be settled into probably isn't going to be a big deal 10 years down the line.

Basically, as long as you did not buy at the top of the bubble you shouldn't be too concerned with the price fluctuations. The prices of homes in the USA will continue to decline because that is healthy and they still need to. If you aren't selling anytime soon let the prices come down, cheaper property tax! (in theory).

Tjos Weel: And by "bank" I mean whoever owns the mortgage at that point in time.

I know I keep on saying this, but...

Do you realize that the people who own the mortgage and the people who issue the mortgage are more often than not never the same person, and that's why these protections don't exist? The only way to ensure that the mortgage owner and the mortgage issuer would be the same person is through an increase in federal regulations.

Rev.K: Tjos Weel: If you buy at, say 2.5 times your income (good rule of them for a max), then 20% down is .5 times your income.

That equation simply doesn't apply here and in a number of other cities. The affordability of housing in a lot of areas is well beyond that figure.

At 20% down required in Vancouver, Toronto, Edmonton, Seattle, San Fransisco, San Diego, home ownership will be a f*cking pipe dream for a sh*t ton of people.

There has to be a balance.

I know what you're saying and I support sub-20% downpayments, but I refuse to buy anything where my mortgage is greater than 2.5x income. This is why I looked into relocating to places like Denver, the Inland Empire, etc. It sucks as someone that was born and raised in Orange and LA Counties, because there are no family areas in those counties that are affordable by any standard metric(like 2.5x income), but it is what it is.

how about $24,000,000 for a terraced house? Link

or $35,000,000 for a 3 bed apartment Link

Bit my favourite is the tiny studio flat for $2,800,000 which barely has even a window Link (new windows)