Who here thinks putting 20% downpayment for a home is crazy?

Question

Let's assume that a couple does happen to have $25,000 lying around for a $150,000 house.

It's too d**n risky to be risking your whole life savings on the down payment of a house. What happens if you or your child needs surgery? What happens if you car breaks down?

Putting that much down on a house is stupid and rediculous. You could put $30,000 in the stock market and you would get better returns than a house, especially in today's market.

Let's assume you buy a $150,000 house, you put down $25,000. That house lowers in value down to $130,000. Guess what chump, you just lost $20,000 and you are up-side down in your mortgage.

Answer 1

And it's d**n risky for me to approve your loan request if you're not willing to put anything down.

If you don't like the housing market now, but your money in stocks.

Answer 2

Not good with math are we? You put 25,00 on a 150,000 house. You owe 125,000 on it. That means that at 130,000 you AREN'T upside down yet. That would be after it lost 30,000 and was worth 120,000. Upside down is owing more then it is worth. Anyway if you can live in a stock certificate then go for it. Most of us need something more to live in, and most DON'T buy a house to be in the real estate business. They buy it so they have somewhere to live. If you want a house to sell then you better plan to buy cheap now and hold it for a few years. I don't see the big deal in paying 20% though because the market is so messed up. Sure it sucks, but that down payment IS APPLIED TO YOUR BILL. It isn't like you give them money to hold the house and they then charge you full price. You now owe 80% instead of whatever.

Answer 3

I guess you were trying to answer your own question.  Unfortunately, you didn't do such a good job.  First of all, $25K is not 20% of $150K! You would need a down payment of $30K to have put down 20% on $150K.  Second, putting down 20% will qualify a borrower for the lowest interest rates, especially after the recent housing bust which was caused because people who were unable to afford a home were allowed to get mortgages without sufficient down payments (what is referred to as having skin in the game).  Wisely, most lenders are now realizing that property values don't always go up and that the way to protect themselves is to require the buyer to take some equity stake.  Third, the stock markets, in nominal values, are below where they were more than 8 years ago, and in real terms (adjusted for inflation) investors have lost close to half their wealth.  Finally, if someone puts 20% down on a house and the price then falls and wipes out their equity they still have two thing on their side: 1) time - they can wait for the price to rebound eventually, and 2) they can still get out from under the house without destroying their credit.  People that don't have money saved to pay for medical costs, car repairs, or roof repair should rent until they build their savings.

Answer 4

if putting that much down on the house is "stupid", then don't do it, but be prepared to get socked with PMI fees. Also, if the downpayment is going to eat up all of your savings, then you shouldn't be buying a house so expensive anyways. You should always have an emergency fund, three to six months living expenses, for the situations you mentioned above. Keep that money in a money market fund, or a high yield savings account.

And just for the record, the housing market WILL rebound.....

Answer 5

the reason for the down payment is when the house goes down in value you are NOT underwater.  If you put down $30K on a $150K house, and it drops to $130K, you are NOT underwater.  Under water is when you own more on the loan then the house is worth.  You only owe $120K.  THIS IS WHY BANKS WANT 20% DOWN.  People are too fast to walk away when the house goes down.

And YES you lost $20K, but that is the risk you take when buying the house.

If you do not want to tie up money in your mortgage, there is a way to do that.  It is called RENTING!!!!