Harder to get 100% financing now?

[an]

20% hasn’t been a requirement for a very very very long time. 20% was a requirement to not get PMI but you can definitely buy with less than 20% down. I agree with what FormerSanDiegan said. His 3 cases cover the majority.

[renterclint]

Josh,

“As to my comment about entitlement, that merely comes from the tone and tenor of renterclints response to my post…”

That’s funny, we’re in some kind of loop here… I swear it was your first comment about “entitlement” that got me fired up in the first place. You rudely accused the initial poster of feeling entitled soley because he was looking into 100% financing.

The truth is I agree with most of your views on this issue. Bankers probably should not be assuming 100% of the risk in most cases(even though they often do at the moment). Homeownership IS a big responsibility, and the prospective borrower/buyer SHOULD show that he is ready to take on such responsibility.

Proof of a borrower worthiness does not soley come from their propensity to save $$. Personally, I’ve owned two homes so far, and I purchased both w/ less than 20% down, and the world did not come to an end. I just do not think it is necessary, and I do not think not having a big down means you are not worthy of getting financing. Does that really make me “entitled”? I live in crappy rentals & drive POS cars like yourself, but my situation is more like the intial poster. I have a “dead-beat” wife (hi, sweetie)& 3 kids. I do not save much, but I am still a fiscally responsible person.

When things come back to “normal” and tried & true lending practices are back (as they seem to be w/ a bullet), hopefully my meager 5 figure equity that I generated from my last home sale will likely be enough for a down-payment. If not, hopefully I’ll still find some crazy, reckless, fly-by-night outfit to finance 100% of the purchase. But I guarantee I will never miss a payment.

[(former)FormerSanDiegan]

I never mentioned 20% I am glad you could read between the lines and extrapolate that out of my post. That takes a certainly subtlety I am not usually capable of.

Josh – You are correct, you did not say 20%. I stand corrected. I got the 10-20% down from the original post, not yours. I assumed (wrongly, I suppose) that you were implicitly suggesting from your response that you would expect a buyer to save that much down.

Regardless of the number, there are plenty of reasons not to save for a down payment if the market provides 0% to 10% down.

Another example. Joe NewHire gets a new corporate job and has the option to put 25% of his income into the company 401k or saving the equivalent in after-tax income towards his down payment. I would have to advise him to put it into the retirement account rather than save for a down payment.

In any case, I think your general message of fiscal responsibility, with which I would agree, was somehow lost in the name-calling.

[PerryChase]

But I guarantee I will never miss a payment.

————

Never say never. I've seen corporate executives and business owners get into financial trouble.

The truth is that there's too much liquidity sloshing around and that liquidity is looking for a return — any return. Prosper.com is one such example.

The problem with 100% financing is that the borrower has nothing at stake but the upside. He gets to gamble with other people's money. The private equities are also gambling with other people's money. Hell, I'd do that same too. Most people won't fly first class with their private funds but they'd do so with the company's money.

I see an implosion in the mortgage business as losses mount. The private equities are next.

 

[CAwireman]

Chris Johnston, the lawsuit liability thing is interesting.

Question, would not a combination of a homeowners policy and an umbrella liability policy protect someone with a house that’s owned free and clear?

Anyone know about this exposure?

Glad you brought it up.

[meadandale]

@josh

You’re comments are f@$cking amazing. Not everyone has a trust fund or bought into the market when home prices were 3x the median income as opposed to the 10x they are now.

Some of us were happy to have alternatives and it had nothing to do with a sense of entitlement.

My income went from $40k to $100k in 4 years. Even at a 20% savings rate, housing prices were going up faster than I would have been able to keep up with in order to have the required 20% down. I would have had to have almost $80k in cash as a down payment for the house that I bought back in 2003 (my first). Fortunately, with a high 700’s FICO and a solid credit history, I was able to get into a house I could afford with a 30 yr fixed 80/20.

I have no trouble making my payments and I never have to worry about my rate adjusting.

People like me aren’t the problem.

[PerryChase]

In Josh’s defense, yes, meadandale, people like you are part of the problem — only a little bit. The real problem is the lenders and they do deserve to loose big time when housing crashes. If the lenders are willing to give out cheap money, you can’t blame the borrowers for taking it.

If it weren’t for the 100% financing and other exotics, there’s be less demand. Prices would be lower and the growth in housing would be more sustainable rather than the boom and burst we are seeing.

I think that the homeownership rate is now at 69% and the long term sustainable rate is 64%. If we go back to the long term sustainable rate, that means that 10% of the homeowners will revert back to being renters.

You bought in 2002. There’s a good chance that your house will depreciate to that level or below. In that case you won’t be too happy. Think of the opportunity cost of carrying that house for all those years when you could’ve been renting for less. The point is not whether you can make the payments. The point is what else you could’ve done with the money (invest it or enjoy spending it on yourself).

[meadandale]

@Perry

You are assuming that because I don’t have a significant chunk of my own money tied up in the house that I am simply willing to walk away if the market turns and let the bank eat the loss.

Nothing could be further from the truth.

I didn’t buy my house as an investment that I could turn over for a quick profit. I bought it as a place to live and a tax shelter. And, in spite of the fact that I could have pulled out a significant amount of equity in it in the last 4 years via a HELOC in order to do some remodeling and landscaping, I preferred not to take on an additional payment and have been socking away cash for that purpose.

There are plenty of people like me who understood the financial obligation that we entered into when we bought our homes and would never walk away from those obligations.

The only money I owe is on my house and my car. I pay cash for everything else.

[renterclint]

Dang it, Perry! It figures you would respond to the “never” comment. You, as usual, are correct. Never say never.

Your comment to meadondale about opportunity cost is sound, but I just wanted to echo meadondale in his response that many of us (especially w/ young families) do not focus on the investment aspect of house, but are looking for a “home” for the long-term.

Maybe us Alt-A folks are a little part of the problem like you say, but maybe the view that you have regarding housing is part of the problem as well. Afterall, looking at a home like it’s an investment is what fueled the speculative component of this bubble.

[guitar187]

Many players have cut their 100% programs. We still have a few big guys left (Countrywide, Indymac, etc.). In my opinion these guys will slowly dry up in the next few months. This should put pretty good downward pressure on values.

[PerryChase]

I didn’t mean to criticize anyone for their personal decisions. Each family has a different situation.

If we had a “normal” market where housing appreciates at 2%-4% per year like it did since 1890, then we wouldn’t feel the need to get into heavy debt and rush out and buy. We would take our time to save and to decide what is best for our families.

If you look at housing in historical terms, housing as a proportion of purchasing power has generally remained the same. But for that same piece of the pie we have better houses. That’s how our generation can afford to live in larger better houses than our grandparents and that’s how we, as a society, increase our standards of living.

The new financial instruments (and govt intervention) caused such a boom in housing in the last 10 years, that housing took up an increasing share of income.

But that is not meant to last.

Think about it. If housing keep on consuming an increasing portion of our income pie, we’d have less to spend on everything else. That will eventually cause a decrease in standards of living because our kids would have to spend a larger percent of their income on housing.

I’m positive about our future, we will continue to improve our living standards. I believe that market forces will cause a realignment that’s beginning to take place right now.

I think it’s useful to think of our total income as 100% to be divided up into portions — 25% for housing 10% food, 10% education, 10% savings, etc…

[gold_dredger_phd]

21109VC:

If you can’t afford a downpayment on your salary just have your mommy buy you a house like my friend’s ex-girlfriend’s mother did for her.

[Chris Scoreboard Johnston]

Chris Johnston

cawireman

The umbrella policy actually acts as a magnet for lawsuits. They can start with that, and go from there. There are complex asset protection structures that can be built, and insurance is very valuable in these areas. However, it is more valuable in life policies which are harder to get at.

The only way that I know to truly protect your home, is have no equity in it, making it worthless to a creditor, or have it in a limited partnership. The limited partnership is not bullet proof, but is a “reasonable” block to a frivolous lawsuit.

I am no expert in this area, but I have read a few books, and have friends who have set things up for themselves like this.

[Cow_tipping]

If 20% down was really really required, houses will cost … 25% of what they do in CA. Yes 1/4th. They’d prolly drop to ~150-300K on average. Dont worry about it. You wish 20% down was required. Heck I hope it never happens, cos I already own a house.
Cool.
Cow_tipping.

[ibjames]

I wish they’d drop to those levels 🙁

I do hope that downpayments are enforce, I too have bought property with 80/20 loans and came out fine, but this time around I’ll have a downpayment. If I can’t get into a place, I’ll just save more.

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