Monday, February 27, 2012

Dr Housing Bubble — The Down Payment Boogeyman

There was a time in our more stable housing history where people wouldn’t even consider buying a home unless they had an adequate down payment.  Part of the buying process required families to tighten their belts and save for a few years for that trek into home ownership.  When so much time, effort, and capital is put into buying a property less people are going to walk away from a mortgage.  This also created a positive buffer zone.  
Starting in the late 1990s and going into the 2000s the idea of a down payment played into the narrative that all debt was somehow golden.  Why does anyone need to save when you can simplytake on a mortgage and forego the years of saving?  
Banks loved it because the mortgage volume churn was like having a money making machine.  Of course much of this philosophy and mentality is what led into the bubble peaking with no-doc, no-job, no-money down mortgages.  Today we examine the down payment debate closely and analyze why it is important to have a bigger down payment especially with government backed loans.

Dr Housing Bubble
The down payment boogeyman – report finds requiring a 20 percent down payment would push out 60 percent of borrowers from qualified residential mortgages (QRMs). Those 29 to 34 acquired a mortgage for the first time in 1999 to 2001 at a 17 percent rate but that rate is now down to 9 percet.
by Dr Housing Bubble

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