Real Estate Folks Upset That Minimum Down Payment On A House Might Go To 20% Like That’s a Bad Thing

Gloucester Real Estate agent Patty Knaggs posted A link to this article-

Will 20% Soon Be the Minimum Down Payment on a Home?

by The KCM Crew on January 23, 2013 · 2 comments

Increased CostSeveral government agencies are reviewing data to determine what will be the minimum down payment required under the new Qualified Residential Mortgage (QRM) guidelines scheduled to be revealed in the next few months. In the original Mortgage Market Note issued by the FHFA, it was suggested that loan-to-value (the percentage of the overall purchase price which was being borrowed) was a major factor in determining if a loan would default:

“For most origination years, requirements for borrower credit score and loan-to-value ratio are the factors that most reduce the ever-90-day delinquency rate of mortgages acquired by the Enterprises that would have met the proposed QRM standards.”

The note then made the following proposal:

“An LTV ratio qualified residential mortgage must meet a minimum LTV ratio that varies according to the purpose for which the mortgage was originated. For home purchase mortgages, rate and term refinances, and cash-out refinances, the LTV ratios are 80, 75, and 70 percent, respectively.”

Basically, the original note suggested that a 20% down payment should be the new guideline. We realize that there has been much debate on this issue since and that the minimum down payment required under the new QRM guidelines will probably be less than 20%. However, we can’t know for sure.

Bloomberg reported last week:

“The six regulators drafting the separate QRM rule, including the Department of Housing and Urban Development, the Office of the Comptroller of the Currency and the Securities and Exchange Commission, must decide whether to include such a requirement — and whether to make it less than the 20 percent they originally proposed.”

Will it be more difficult to qualify for a mortgage after the new QRM rules are announced? Probably

As David Stevens, President of the Mortgage Bankers Association said during a speech in Washington on Jan. 16:

“I have consistently warned of the regulatory tidal wave to come and it’s finally upon us. These changes will impact business operations and the future of mortgage access for years to come.”


My response:

I remember going for my first loan back when I was 22 years old.  I had a decent enough amount of money saved from working every summer since I was 9 down here at the dock but the bank turned down my loan application.  The reason they gave me was because it was for one half of a duplex and they didn’t like to give loans on duplexes in case the other half of the duplex turns out to be a stiff and doesn’t have the money to maintain the place properly.

It was the very best thing that ever happened to me in my financial life.  Not because the investment would have turned out to be a good one or a bad one but because it made me so angry, so determined to prove that bank wrong it drove me to work and save like a maniac. 

Remembering advice my dad had told me- “A bargain isn’t a bargain unless you really need something” and   “Just because something was on sale doesn’t mean you should buy it” and another one he used to say- “The guy that makes $50,000 a year but saves $10,000 is way better off than the guy that makes $100,000 but spends $110,000.”   Two great pieces of advice that served me well.  I’m not quite the maniac saver that I used to be but being disciplined early on has definitely helped me in mid life.

Anyway before I get too far off track I’d like to say that I think that our Federal Government and Business Community and American Workforce has Become INSANELY OUT OF SKEW WITH WHAT THEY DESERVE.  As if owning a home is a right and you should only have to put down 2.5% or zero percent.  Or businesses should always have access to cheap money in the form of crazy low interest rates just to keep the American Economy going.

These cheap rates and low thresholds for homeownership are exactly IMO what got us into the mess we are in.

Damn right someone should have to prove they can save the 20% for a down payment before they own a house.  Have a goddamn stake in the game.  If you can’t afford it, forgo  the trips to the mall and the playstation and make the sacrifices you need to make to get there.  If you still can’t afford it, rent til you can. 

Perpetually low interest rates for business communities seems to make capital flow to less than perfect investments.  The people that saved all their lives and should be rewarded by the ability to invest in low risk cds and bonds but there’s no payback any more.  They’ve made money so cheap by printing so much of it it forces people at the end of their lives when they should be investing conservatively into riskier stocks.

When I was 20 years old 20% down was more or less standard for what you would put down on a house.  If you defaulted on the loan the financial institution who took the risk on you at least has that 20% that you put down to work with in trying to get out of that bad investment they made in you.

Every time it comes around to the discussion of interest rates on CNBC these financial dudes keep clamoring for lower interest rates, artificially lowered by the amount of money they want the government to print.  Well our financial system has become so addicted to these cheap rates they’ve backed us into a corner that any rise in rates would be catastrophic.  It’s catastrophic because you’ve put on way too much risk for what you can handle.  How about teaching responsibility instead of bail outs?  How about rewarding savers instead of teaching people that being a good American is to spend spend spend?

In my opinion there shouldn’t be any as in ZERO no money down loans or 2.5% down loans.  Not unless you have other assets that you can pledge in case you bail out on it.  It should probably start at 10% down and that’s only if you have a pretty good track record of job history and savings.

Maybe I’m old fashioned that way.

11 comments

  • I’m an old fogey too. 20% down and your mortgage payment never higher than 28% of your gross income. I thought those were the rules.

    I like your dad’s rules to live by. My dad had the same rulebook. But the rules have been skewed against people who save. The grasshopper got ahold of the book and made the hard working ant look foolish. But winter always arrives.

  • As a 24 year old who is trying to save, pay rent and pay student loans by working 50 hours a week, this 20% is impractical. If I have proven that I can save up 5 to 10% while paying $1,000 a month in rent, along with utilities, a car payment, loans etc, why should I be punished and have to save for another ten years? Some of us would like to be able to begin a family in a house of our own before we turn forty. . just saying.

    • Thanks for speaking up J–when Joey and Paul went to college, college didn’t cost a fortune. Joey’s advice, and his Dad’s, about spending and saving, is fantastiic for everyone, at any age. Perhaps there is a happy medium. Five percent is too low, you will be saddled with much higher mortgage payments. Fifteen percent and greater will be easier to manage over the long run.

      My husband and I had to put 25% down because we were are both self-emplyed when applying for our home mortgage. There are so many financial benefits offered to homeowners, ie lower auto insurance rate,etc.-its understandable why you want to own a home now. Keep on saving and I hope you’ll be able to take advantage of the low(er) cost of homes and historically low interest rates, as I am sure most who own a home at present now benefit from. Perhaps they are not earning as much on their CDs and bonds, but are making up the difference with lower mortgage payments.

      Partly what got us as a nation into the financial challenges we are working our way out of today is the concept of homeownership for everyone, even if they could not afford it. Let s face it, wouldn’t it be better for everyone if we could all own our own homes, rather than spending a lifetime paying rent with nothing in the end. The real problem is not in the concept of “homeownership for all who can afford it,” but in unscrupulous lending practices by greedy lenders, investors, and by financial institutions cooking the books, ie. Barclays and the fixing of Libor, the London interbank offered rate.

  • Joey, I agree COMPLETELY. The real estate “bubble” was driven significantly by people buying homes who could not truly afford them. No money down helped fuel this.

    Responsibility…maybe it can return as an original American value?

  • Good Post. I agree Joey. You have to Save and be responsible. But I am also grateful I didnt need 20% for my house. Its pretty hard to save 60K (20% of 300) and for retirement, if you plan on buying a house or condo in Mass. Drives me crazy to watch those house buyer shows when they have to choose between the awesome $150K house or the ok $140K house. Hah, but its all relative and balances out. On the flip side, I remember a mortgage broker told me they had a no-income verification loan and I said WTF, that makes no sense.

  • I agree with Kim, 20% may be too much for young folk, they should buy a house they can afford first of all and then not treat it like an ATM machine refinancing every 2 years and taking the equity out of it and then ending up underwater when the bubble bursts. Maybe they should have a rule you can put 10% down but you cannot refinance it to get money – lower interest rate yes but no equity money out.

  • That was the way it was when I bought my first house. AND if you weren’t married you couldn’t buy it jointly! Had to hire an attorney to put my name on it. I’m dating myself.

  • Joey – you couldn’t be more right! I have seen, throughout 40-odd years working in banking and finance, folks getting into massive money trouble. It’s still difficult to persuade anyone that it’s not more expensive to pay for college or cars or whatever now than it was “back then.” In the 60s it cost $250 per semester at Salem State. Not so affordable when you see that minimum wage was $1 an hour. It’s so critical to live below your means. Then you can enjoy the golden years.

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