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I found this interesting, especially the bit about the condos since I am part of that trend (selling a SFH and moving to a condo unit). The graphs of percentag

I found this interesting, especially the bit about the condos since I am part of that trend (selling a SFH and moving to a condo unit). The graphs of percentage-down payments looks exactly backwards from what I might have guessed had someone asked me just prior to reading this. In the run-up to the meltdown, most borrowers were still putting between 5 and 20 percent down. (I think that blue line to the left of the 5 value is "3.5%," or the standard FHA down payment.) My guess would have been that the far left of that graph would grow higher as 2008 approaches and then drop after. It doesn't; the 20% line stays as the overall winner, even though 5 and 10 percent down still collectively beat it. I see that the post frames it as "so many low-down mortgages" but I look at it as "a whole lot of people were still putting 20% down." I wonder if some of this had to do with the appraised value...the value was seen as "high enough" so a higher initial LTV was acceptable because 5% was still sufficient skin in the game. (Oh, who am I kidding? Many loans made in the years prior to 2008 had only superficial relationships with reality.)

hueving 10y ago
It's interesting how perspectives change. If you talk to older folks they will point out that even 20% down was 'low'. I think my father had to have something like half to get a mortgage (late 1960s). I can't help but wonder if we would have much more affordable housing if it wasn't so easy to get such massive loans relative to their down-payments.
- verelo 10y ago
  I don't think that's in question; The simple fact is money for housing is cheap right now, which means it requires more of it to convince owners to part with their assets as most of them still need to buy elsewhere after they sell a house. If money was hard to come by, houses would be cheaper, but then you would also have more difficulty getting that money to start with. I'm not sure the affordability would improve, it's hard to say what other impacts a higher interest rate (or even more so, a higher % down requirement) market would create. The only exception to all this are new houses and condo builds, but in those markets the reason they're more affordable comes down to a combination of location and risk, risk that the property may not actually be worth its selling price, so you get it at a 'discount' to the market if it were in a more established area.
  - jdmichal 10y ago
    > ... most of them still need to buy elsewhere after they sell a house. This is one reason that I never understood people treating their first house as an investment. Yay, it went up 50%... And so did the house you'll buy after you sell it. You need to live somewhere. Your first house is covering a short position, not an investment.
    - grellas 10y ago
      It is a mistake to treat housing as an investment but that doesn't mean it can't be for the right circumstances, e.g., many who bought homes in Silicon Valley 20+ years ago have seen their home prices double or triple and they can easily go to other parts of the country where they can buy a replacement home of comparable quality for less than half the sales proceeds of their current home, pocketing the difference. This is most certainly an anomaly in the context of the broader housing market. But it is a huge benefit for those who do happen to benefit in this way.
      - rconti 10y ago
        20+ years ago? Probably more like 10x. edit: in nominal terms.
    - mkaziz 10y ago
      Couldn't you apply that for anywhere in the market? Eg. my money is in index funds, but if the market collapses, the value of my index funds gets wiped out and I can't exactly buy a house on the cheap ...
      - hx87 10y ago
        If the market collapses, you're screwed anyway, but at least your index fund is diversified (I hope) and liquid, whereas your house is the most undiverse and illiquid asset you can buy.
      - jdmichal 10y ago
        I'm not quite sure what you mean. My point is that you need somewhere to live. It's like being short a stock and you need to cover. Covering a short is closing an investment position, not opening one. If you sell the house, now you're short again and need to cover. Once you buy your second property you are actually investing.
pasbesoin 10y ago
Didn't read the article, but 20% is the magic amount where one of the insurance payments (essentially, insurance you take out against the risk of your defaulting) goes away. The advice used to be, if you can do 20%, do so, to save yourself that insurance expense (in the "used to be" markets, at least, where you ended up ahead, financially, by doing so). P.S. Rereading my last sentence -- or, "sentence" -- I see that I definitely need one, or several, more cups of coffee.
- danvasquez29 10y ago
  I believe it's 'PMI' your referring to. You don't need 20% to avoid that anymore with a lot of programs, it's down to 5% or even 3.5% if your credit is high enough. 720 is the sweet spot right now where you should pretty much never have PMI. There's also some incentives out there right now where the lender pays the PMI for you.
  - breischl 10y ago
    In addition, PMI was not originally tax deductible. They made it tax as one of those stimulus measures, I think around 2008 or 2009 (about 1 month after I paid mine off... not that I'm bitter or anything). Since PMI is tax deductible now that makes it effectively less expensive, and avoiding it less advantageous/important.
  - massysett 10y ago
    You don't get something for nothing here. The low down payment loans that lack PMI generally have higher rates. Lender-paid PMI always comes with a higher rate. Even if your credit is well above 720 it can still be better to pay PMI than to have a higher-rate loan. The PMI eventually goes away; to get rid of a higher rate, you have to refinance. The best choice depends on factors such as how long you will keep the home, but if you're putting less than 20 percent down, avoiding PMI is not a worthwhile objective. PMI might actually be the best deal.
  - pasbesoin 10y ago
    Yes, "PMI". I think I have to agree with my child co-commenters, that if they're waiving PMI in one sense, you're paying for it in another. You always have to add up all the pieces -- over their respective lifespans -- and see where your total costs come out. As well, whether retaining more money up front and pumped into your own investments is going to outperform any additional eventual expense, allowing you net (and also considering taxes) to come out ahead. Past a certain point, I'd say, make sure you're doing pretty well, financially, even if you end up leaving a couple of hundred or even a thousand on the table over the lifespan of the load. Instead, focus your remaining time and energy on having a good life. Worth far more than worrying about the last dollar.
liveoneggs 10y ago
an 80/20 still puts down 20%, just in a different way. No sure if the graph is accounting for that.

hueving 10y ago

It's interesting how perspectives change. If you talk to older folks they will point out that even 20% down was 'low'. I think my father had to have something like half to get a mortgage (late 1960s). I can't help but wonder if we would have much more affordable housing if it wasn't so easy to get such massive loans relative to their down-payments.

verelo 10y ago
I don't think that's in question; The simple fact is money for housing is cheap right now, which means it requires more of it to convince owners to part with their assets as most of them still need to buy elsewhere after they sell a house. If money was hard to come by, houses would be cheaper, but then you would also have more difficulty getting that money to start with. I'm not sure the affordability would improve, it's hard to say what other impacts a higher interest rate (or even more so, a higher % down requirement) market would create. The only exception to all this are new houses and condo builds, but in those markets the reason they're more affordable comes down to a combination of location and risk, risk that the property may not actually be worth its selling price, so you get it at a 'discount' to the market if it were in a more established area.
- jdmichal 10y ago
  > ... most of them still need to buy elsewhere after they sell a house. This is one reason that I never understood people treating their first house as an investment. Yay, it went up 50%... And so did the house you'll buy after you sell it. You need to live somewhere. Your first house is covering a short position, not an investment.
  - grellas 10y ago
    It is a mistake to treat housing as an investment but that doesn't mean it can't be for the right circumstances, e.g., many who bought homes in Silicon Valley 20+ years ago have seen their home prices double or triple and they can easily go to other parts of the country where they can buy a replacement home of comparable quality for less than half the sales proceeds of their current home, pocketing the difference. This is most certainly an anomaly in the context of the broader housing market. But it is a huge benefit for those who do happen to benefit in this way.
    - rconti 10y ago
      20+ years ago? Probably more like 10x. edit: in nominal terms.
  - mkaziz 10y ago
    Couldn't you apply that for anywhere in the market? Eg. my money is in index funds, but if the market collapses, the value of my index funds gets wiped out and I can't exactly buy a house on the cheap ...
    - hx87 10y ago
      If the market collapses, you're screwed anyway, but at least your index fund is diversified (I hope) and liquid, whereas your house is the most undiverse and illiquid asset you can buy.
    - jdmichal 10y ago
      I'm not quite sure what you mean. My point is that you need somewhere to live. It's like being short a stock and you need to cover. Covering a short is closing an investment position, not opening one. If you sell the house, now you're short again and need to cover. Once you buy your second property you are actually investing.

pasbesoin 10y ago

Didn't read the article, but 20% is the magic amount where one of the insurance payments (essentially, insurance you take out against the risk of your defaulting) goes away. The advice used to be, if you can do 20%, do so, to save yourself that insurance expense (in the "used to be" markets, at least, where you ended up ahead, financially, by doing so). P.S. Rereading my last sentence -- or, "sentence" -- I see that I definitely need one, or several, more cups of coffee.

danvasquez29 10y ago
I believe it's 'PMI' your referring to. You don't need 20% to avoid that anymore with a lot of programs, it's down to 5% or even 3.5% if your credit is high enough. 720 is the sweet spot right now where you should pretty much never have PMI. There's also some incentives out there right now where the lender pays the PMI for you.
- breischl 10y ago
  In addition, PMI was not originally tax deductible. They made it tax as one of those stimulus measures, I think around 2008 or 2009 (about 1 month after I paid mine off... not that I'm bitter or anything). Since PMI is tax deductible now that makes it effectively less expensive, and avoiding it less advantageous/important.
- massysett 10y ago
  You don't get something for nothing here. The low down payment loans that lack PMI generally have higher rates. Lender-paid PMI always comes with a higher rate. Even if your credit is well above 720 it can still be better to pay PMI than to have a higher-rate loan. The PMI eventually goes away; to get rid of a higher rate, you have to refinance. The best choice depends on factors such as how long you will keep the home, but if you're putting less than 20 percent down, avoiding PMI is not a worthwhile objective. PMI might actually be the best deal.
- pasbesoin 10y ago
  Yes, "PMI". I think I have to agree with my child co-commenters, that if they're waiving PMI in one sense, you're paying for it in another. You always have to add up all the pieces -- over their respective lifespans -- and see where your total costs come out. As well, whether retaining more money up front and pumped into your own investments is going to outperform any additional eventual expense, allowing you net (and also considering taxes) to come out ahead. Past a certain point, I'd say, make sure you're doing pretty well, financially, even if you end up leaving a couple of hundred or even a thousand on the table over the lifespan of the load. Instead, focus your remaining time and energy on having a good life. Worth far more than worrying about the last dollar.

liveoneggs 10y ago

an 80/20 still puts down 20%, just in a different way. No sure if the graph is accounting for that.