[48Laws]

2009 Article

HOME buyers are often advised to come up with at least a 20 percent down payment, or face the likely additional expense of private mortgage insurance. But this year, at least, that counsel would not have saved them as much money as in the past.
More Mortgage Columns

Rules put in place in late 2008 by Fannie Mae and similar rules adopted by Freddie Mac are less favorable to borrowers who put down 20 percent to 25 percent, considered to be the industry minimum. (Fannie and Freddie are the government-controlled companies that establish the underwriting standards for most of the nation’s loans.)

For most people, it turns out, smaller down payments result in lower interest rates. Whether that benefits borrowers in the long term, though, is open to debate.

Take, for instance, borrowers who want to buy a $400,000 home, and who have a credit score of 720, which is considered very good.

In late August, such borrowers who had $80,000 saved for a 20 percent down payment would have qualified for a 4.875 percent rate on a 30-year fixed-rate loan, according to Regina Mincey-Garlin, an owner of RCG Mortgage in Montclair, N.J.

But that was also the rate offered to borrowers putting down only 5 percent, and therefore required to have private mortgage insurance.

Oddly, those who put down 25 percent, or $100,000, were saddled with a higher interest rate, 5.375 percent, Ms. Mincey-Garlin said.

The underwriting rules from Fannie Mae and Freddie Mac consider borrowers in the 20 to 25 percent down payment category to be the riskiest, in part because they are not required to carry private mortgage insurance. At higher down payments, however, rates begin to fall.

Amy Bonitatibus, a spokeswoman for Fannie Mae, said that the policy wasn’t meant to encourage lower down payments, which some have seen as the main culprit in the home foreclosure crisis.

“It’s just a less risky loan from our point of view,” Ms. Bonitatibus said, because the lender’s exposure to foreclosure losses is largely eliminated by mortgage insurance.

She said the policy didn’t benefit only Fannie Mae and lenders that sell loans to the company.

Borrowers benefit too, she said, especially those who would otherwise have had to stretch for a bigger down payment and leave themselves with no financial cushion. These borrowers can instead save the extra cash they might have put toward a bigger down payment, keeping it handy for emergencies.

Besides, Ms. Bonitatibus noted, as soon as borrowers pay off enough of their loan principal to establish a 20 percent equity position in the home mortgage, insurance is no longer required.

While borrowers who take out mortgage insurance can indeed enjoy lower interest rates, their monthly payments will be larger than those who made the larger down payments, because the loan itself is bigger.

A borrower who put down 25 percent for a $400,000 home would make a monthly mortgage payment of $1,680, while the borrower who put 15 percent down would pay $1,906 — or $1,799 in principal and interest, plus another $107 monthly in mortgage insurance. (The mortgage insurance is tax deductible, however, so depending on a borrower’s financial circumstances, the net mortgage liability would probably be less.)

Ms. Mincey-Garlin of RCG Mortgage says she still advises borrowers to make a down payment as large as they can, because the increased equity will help them in the long term.

She also suggests that borrowers maintain savings equivalent to at least nine months of mortgage payments.

Those who choose to make a lower down payment in the expectation of terminating their private mortgage insurance after a few years may encounter a harsh surprise, Ms. Mincey-Garlin said.

With property values declining, she said, some lenders have balked at releasing borrowers from mortgage insurance.

Source: http://www.nytimes.com/2009/09/06/re...mort.html?_r=1

[S_M]

Originally Posted by 48Laws

Ms. Mincey-Garlin of RCG Mortgage says she still advises borrowers to make a down payment as large as they can, because the increased equity will help them in the long term.

She also suggests that borrowers maintain savings equivalent to at least nine months of mortgage payments.

Two most important lines in that article.

[48Laws]

Originally Posted by MediaArtist

Again, you're being dishonest. My first post in this thread was that I didn't think it was a great time to buy.

Can you be honest for once in your life or at least read the thread before you make a long, two page, reply?

Seriously, just casually browse and read the thread, do some basic fact checking, then take a breath or two, then reply. I think it would help the flow of this conversation a bit more. For instance you would have known that FHA delinquencies are outpacing Fannie/Freddie/Conventional delinquencies recently, but you didn't even bother to do basic "google" research.

Regardless, I think your advice is horrible given numerous stats that I've covered. Let's both hope people don't listen to you, for the sake of our countries economic health.

Well...now you really are on crack, because interest rates are the lowest they've been in years and there are tons of foreclosed, for sale homes on the market with banks carrying the expenses such as property tax etc. These home need to be unloaded. Do you have any clue what you're talking about? :lol

"Recently" Oh, so how does that show a trend or how does that paint a picture of how these foreclosure layout? Also, the funny criticism you have about these loans is, the implication ignoring those people have to actually qualify. You're implying anyone can get it that why the delinquency rate is higher.

I think you're way too emotional. I think you're so emotional, you'd rather be difficult than actually admit that having funds in the bank is a better option. That's not common sense. But, hey! Stick to your guns.

[MediaArtist]

Originally Posted by smohr33

Two most important lines in that article.
Ms. Mincey-Garlin of RCG Mortgage says she still advises borrowers to make a down payment as large as they can, because the increased equity will help them in the long term.

She also suggests that borrowers maintain savings equivalent to at least nine months of mortgage payments.

Thanks for pointing it out, when someone post an article meant to support their own point, but it ends up supporting the opposing point, I think nothing else needs to be said.

[48Laws]

Originally Posted by smohr33

Two most important lines in that article.

3.5% can be as large as they can, too. Just making a point.

[48Laws]

Originally Posted by MediaArtist

Thanks for pointing it out, I think nothing else needs to be said.

That doesn't agree with your points.

[MiamiE93Vert]

Originally Posted by ABQ325i

MiamiE93Vert gives great advice.

I'd like to add a little to #7 on his list though.

When I write up a purchase agreement for a buyer for a non-distressed property, I always ask for the seller to pay for inspections and appraisals. They've set the price and advertised it as a great property, so back that up with a professional appraisal/inspection.

You don't want to be in a position where you are out of pocket because you've paid for an appraisal or inspection and the house comes back with a lower value than you offered or there is something seriously wrong with it.

Small caveat; this may vary by jurisdiction as this request would not be customary in Florida. Nice to know it is an option in New Mexico though.

[48Laws]

Originally Posted by MediaArtist

Thanks for pointing it out, when someone post an article meant to support their own point, but it ends up supporting the opposing point, I think nothing else needs to be said.

You're wrong, though. LOL! Those two comments actually support mine. WTF!

[MediaArtist]

Originally Posted by MediaArtist

If you can't afford 20% down, and reserve funds, then you should be looking at a smaller, or less expensive house.

From the article:

Ms. Mincey-Garlin of RCG Mortgage says she still advises borrowers to make a down payment as large as they can, because the increased equity will help them in the long term.

She also suggests that borrowers maintain savings equivalent to at least nine months of mortgage payments.

Seems to agree with me to a tee.

Also, your article is from 2009. Good luck getting financed at 5% from a private lending institution in 2012.

[kevinbahnz]

in that article it says a 720 score is very good but that was in 2009. How about in todays standards. Mine is about 720 as of today because in the past 12 months I've had over 10 Inquiries. All my debts will be paid off by the end of the year and my credit report activity will be dormant until early 2013. I'm 36 with 3 dependents with a net of 80k/year. I have enough for 20% DP on a $200k house but I don't want to if i don't have to. Am I approved?

[S_M]

Originally Posted by kevinbahnz

in that article it says a 720 score is very good but that was in 2009. How about in todays standards. Mine is about 720 as of today because in the past 12 months I've had over 10 Inquiries. All my debts will be paid off by the end of the year and my credit report activity will be dormant until early 2013. I'm 36 with 3 dependents with a net of 80k/year. I have enough for 20% DP on a $200k house but I don't want to if i don't have to. Am I approved?

I can't tell you whether you're approved or not, but I can tell you 720 won't get you a prime rate.

I had barely over a 750 when I bought, and was warned that if I dropped to a 749 before closing the rate would go up. This was Nov 2011.

[kevinbahnz]

Originally Posted by smohr33

I can't tell you whether you're approved or not, but I can tell you 720 won't get you a prime rate.

I had barely over a 750 when I bought, and was warned that if I dropped to a 749 before closing the rate would go up. This was Nov 2011.

That's what I'm afraid of. i might just wait a little longer to buy. that way i can save up some more and hope the market don't pick up anytime soon. What do you think the market will look like next year or so. After Romney becomes president..

[ABQ325i]

Originally Posted by MiamiE93Vert

Small caveat; this may vary by jurisdiction as this request would not be customary in Florida. Nice to know it is an option in New Mexico though.

I don't think it is customary in most places, that doesn't mean you shouldn't ask for it!

On our purchase contracts there are boxes to be checked indicating who pays for what. I presumed all states had similar boxes. Curious to know if that is the case now.

[momentum]

all the articles you guys are quoting is 6 months behind... i do this for a living- i'm on the frontline of this real estate stuffs.... all the people saying that putting 20% down are real dumb (consumers), they dont know anything with real estate and finances...... putting 20%-30% down means that you think you are going to live in that house forever unit pay it off.....

let me tell you something, a house is a tool that you use and change, upgrade, move, and etc..... you are not your parents that buys and stay there forever.... this generation, a house is live in 3-5 years....why would you put down lots of $$$ and not have a rainy day backup $$$.....

[kevinbahnz]

Originally Posted by momentum

all the articles you guys are quoting is 6 months behind... i do this for a living- i'm on the frontline of this real estate stuffs.... all the people saying that putting 20% down are real dumb (consumers), they dont know anything with real estate and finances...... putting 20%-30% down means that you think you are going to live in that house forever unit pay it off.....

let me tell you something, a house is a tool that you use and change, upgrade, move, and etc..... you are not your parents that buys and stay there forever.... this generation, a house is live in 3-5 years....why would you put down lots of $$$ and not have a rainy day backup $$$.....

This may sounds crazy but I do. I like to keep things I pay a lot of money for Including the 335 after warranty runs out. I plan to live in the house until it is paid off or until I retire and travel back and forth to my native country and If I can get away with an FHA loan with minimum down , I think I'll go for that.

[48Laws]

Originally Posted by MediaArtist

From the article:


Seems to agree with me to a tee.

Also, your article is from 2009. Good luck getting financed at 5% from a private lending institution in 2012.

Actually, that article touches on every single point I made.

Definition: Private mortgage insurance, often referred to as PMI, is insurance that lenders require borrowers to pay for when they get a mortgage and don’t have enough equity in the home.

http://financialplan.about.com/od/re...minate-PMI.htm

-On post #45, I said a PMI is levied by the lender on a homeowner who doesn't put 20% down to offset the lack of equity in the home. It's the lender's insurance per se to protect them. Once enough equity is reached the PMI ceases, thereby lowering their mortgage payment anyway. YOU SAID OTHERWISE and you're wrong!

-Initially, you argued the 20% rule. I said otherwise considering our current economic climate. The article, if you want to reference that, detailed in plain view, how qualifying for an FHA loan with less down actually can yield a lower interest rate than a conventional loan. And that banks often see large down payments as riskier since much of their emergency funds are depleted. YOU SAID OTHERWISE and you're wrong!

-The article said one should maintain several months of mortgage payments, I have championed that same advice since I entered this thread and advised those to save some of that large down payment in the event of an emergency.

-The article you posted mentioned Freddie Mac and Fannie Mae, no? Well, the article I posted quoted a spokeswoman for Fannie Mae and she herself said those who put down 20-25% are the RISKIEST to lenders. How could that be? Well, they don't carry a PMI. So, that little fact completely destroys your very poor advice you're giving to people on this site, buddy.

BTW, I have a 3.3. So, have no idea what the heck you're talking about but, then again you think it's not a good time to purchase a home, so what do I know....

[S_M]

Originally Posted by momentum

all the articles you guys are quoting is 6 months behind... i do this for a living- i'm on the frontline of this real estate stuffs.... all the people saying that putting 20% down are real dumb (consumers), they dont know anything with real estate and finances...... putting 20%-30% down means that you think you are going to live in that house forever unit pay it off.....

let me tell you something, a house is a tool that you use and change, upgrade, move, and etc..... you are not your parents that buys and stay there forever.... this generation, a house is live in 3-5 years....why would you put down lots of $$$ and not have a rainy day backup $$$.....

Maybe thats you. You don't represent every buyer in the market. Nor do you represent every market.

I put 20% down and have more than another 20% for a rainy day. Does that still make me "real dumb"? Does that mean I "don't know anything about real estate and finances"?

Real estate isn't a business for everyone. My home isn't a "tool". It's my home.

[momentum]

consumers only know to spend $$$, they dont know how to keep or make big money.... take away the your job and things fall apart.... businessmen knows when to put out money and when to keep the money. I'm trying to tell you how to work the system, not be the system....

[MediaArtist]

Originally Posted by 48Laws

a spokeswoman for Fannie Mae and she herself said those who put down 20-25% are the RISKIEST to lenders.

Gosh, so much bad advice here. Not only are you quoting an article from 2009 (rates and underwriting rules have completely changed since then), you are interpreting that to mean lower down payments are better, she's not saying that at all. You simply don't understand what the article is actually saying, and are taking quotes out of context to support your weak platform. I'm glad for the most part, people are dismissing your advice.

Here's actual statistics showing delinquencies by down payment amount:



From 2002-2008, people who put down 3% were FOUR times likely to default than people who put down 25%. These are actual delinquency statistics recorded by the mortgage industry. All lower down payments does is increase the size of the market, but in doing so it raises the rate of default. This is statistical fact, not opinion.

As I said before, your advice is horrible.

[48Laws]

How about you address all of the fallacies you are promoting in this thread and give the graphics a break, huh? I addressed everything you spewed yet you can't
rebut any of it. I call that being intellectually dishonest. I'll give you a second chance instead of dodging my clear points.

[MediaArtist]

Originally Posted by 48Laws

How about you address all of the fallacies you are promoting in this thread and give the graphics a break, huh? I addressed everything you spewed yet you can't
rebut any of it. I call that being intellectually dishonest. I'll give you a second chance instead of dodging my clear points.

You mean ignore facts that your advice about low down payments is horrible? Okay, let's ignore the fact that your advice would leave people 4x more likely to default than someone who follows my advice and address your "clear points".

"how qualifying for an FHA loan with less down actually can yield a lower interest rate than a conventional loan."

Because you posted an article from 2009, this point is no longer valid.

The lowest FHA rate as of 7/18/12 can offer for a 30 year fixed is: 3.791%
The lowest conventional 30 year fixed is: 3.673%

When you go 15 year fixed it gets even worse, FHA: 3.433%, Conventional: 3.091%

So basically, your advice is based on an outdated faulty premise. I think the only "clear" point here is that your advice is horrible.

Now why don't you address the fact that lower down payments (like you're suggesting) lead to higher rates of default?


In fact, I know you can't answer it, so let's try something you will understand. Why don't we have a gentleman's bet to settle this issue? Let's say a small amount of $1,000. I'll bet you that FHA delinquency will rise in the next 3 months, because low down payment financing, and a system based on it, simply doesn't work. So by October 18th, 2012 (or so), I will bet you $1,000 that FHA delinquency will rise, rather than go lower. If what you're saying is true, that low down payments work, you should take my $1,000 without much effort. If however delinquency does rise (anything above a 0% increase), then you owe me $1,000. We can have a moderator hold the checks, or do donations to our favorite non-profit.

Are you game?

[kevinbahnz]

It makes sense that for people who put lower DPs it's easier for them to walk away if shit hits the fan vs. someone who's invested more money for their home. I think we all get that..