20% Down Requirement Will Damage Not Just The Housing Market, But The Economy As A Whole
I just commented on a blog post where the fellow Realtor was an advocate of the requirement of 20% down for home buyers. I fully disagreed with his stance. He lived in a very affluent area, and from his comments, appeared to be a part of that higher socioeconomic level. I mentioned that, with that brings a certain amount of disconnect from the majority of the rest of the country. I would not advocate a of return stated income - Neg-Am loans for anyone other than self employed. As I realize they had a good deal to do with the meltdown. They were a good tool that was mis-used for liar loans for people that wouldn't have qualified any other way. But to say that no-one should buy a home without 20% down reeks of elitism. Have you noticed that the economy, as a whole, follows the housing market? Just as the job market does.Â Would you really like to see what happens if this 20% down proposition was turned into law? The economy would falter, jobs would be lost, and the gains we have seen in those areas would be lost.Â If per chance someone disagree with that statement, than why would the economy fail as it did, and why were all the jobs lost, when the housing market took a nose dive. They are all very intertwined, and one should be careful when trying to make a drastic change with such a broad brush.
Side-note: 20% down doesn't guarantee loan payments being made, just as 3.5% or 0% down doesn't mean that they will have less of a chance of being paid. Making a loan payment depends on having a job or another source of income that creates a paycheck. The mortgage that one is approved for is based upon that income. So you have a $400,000 mortgage on a $500,000 purchase with a 20% down product, or you have a $400,000 mortgage on a $414,500 purchase using a 3.5% FHA product, or you have a $415,000 mortgage on a $400,000 purchase using 100% VA.Â The monthly payment is going to be relatively the same if the interest rates are the same. And the driving force in order for that payment to be made, is the borrower having income, not that they put down 20% or 3.5% or 0%.
My point being is that people are qualified for loan programs based on their income, and which loan product they use affects the purchase price of the home they can buy. Yes, I know the ratios are a tad different, but not all that much.Â All a 20% down requirement does is minimize the number of people who can buy a home, and it would damage the housing market, which in turn would damage the Economy, as well as the job market. This would slow down, and has the possibility of reversing the over all recovery.
Dave Jezierski, CDPE, Avery-Hess Realtors
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