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Not sure I agree with the downpayment math considering growth in Seattle and Redmond where I am is between 7.5% and 9%. 20% downpayment for a $750K home (modest

Not sure I agree with the downpayment math considering growth in Seattle and Redmond where I am is between 7.5% and 9%. 20% downpayment for a $750K home (modest here) would be $150k which could take you a few years to save during which you're watching your dream home's price pull away from you. I hear you about the risk of being underwater and your proposed solution is to build up a pile of cash that you're prepared to lose if your home price drops below purchase price. But what prevents you from building up that same pile of cash after buying the house if you need to get out of the mortgage? You're going to lose it either way if you want to move and you're underwater. Incidentally if you are interested in a zero down mortgage, Navy Federal is a great option, alternatively you can look at places like the NASA credit union which is easier to become a member of (no military affiliation required, IIRC you just join the NASA society or something like that).

nemo44x 11y ago
You may have to pay PMI if you don't have 20% equity. This can cost you a lot of money over time - especially if it will take you years to get 20% equity. And it likely will take you a long time due to the fact that mortgages are structured such that you're mainly paying interest on the loan the first few years creating nearly no equity. So if you buy a house with 10% down if may take you many years to get to 20% equity while paying PMI all the while. And exposing yourself to more foreclosure risk. If you don't have 150k (plus another 50k for buffer) liquid then you probably can't afford the 750k home and look for something cheaper or continue to rent and invest the difference between rent and mortgage to possibly stay ahead of the property values of your area. However, YMMV.
- kbenson 11y ago
  The same cases where you would want to go with 10% down instead of waiting to get 20% (such as increasing home prices in the area), are probably the same cases where you can refinance in a few years and take advantage of the increased assessment value to get 20% equity so you can drop PMI.
  - nemo44x 11y ago
    Indeed - but now you are a speculator. There is no guarantee that the value will go up, that you will be able to refinance, that your credit will be any good then, that you will even have a job among a myriad of other things. I don't believe the typical person should take on that type of incredible risk.
    - kbenson 11y ago
      You are always a speculator when financing any portion of your house. You can lose your job in either scenario. By holding out until you have 20% down, you are speculating that the housing prices will not drastically increase in that time. > I don't believe the typical person should take on that type of incredible risk. If you can't afford it, you shouldn't do it. I'm talking purely about maximizing value by minimizing amount paid overall. Sometimes you will be better off waiting to get 20%, sometimes you are better off taking advantage of current market conditions. In both cases, there is the the chance that your decision ends up costing more than the other strategy, depending on how the market performs.
a8da6b0c91d 11y ago
Nobody ever seems to acknowledge the possibility of another across the board 30% drop in prices all over the country. This is my main reason for not buying. I think another severe, deflationary recession is almost an inevitability. Apparently I'm almost alone in remembering that housing can go down a lot.
- mjevans 11y ago
  The problem is entirely with how the 2008 bailouts were structured. There wasn't actually any market /correction/.
- eclipxe 11y ago
  Only matters if you need to sell. Look at the market now, it fully recovered and then some in most areas. The only people that lost out were those that were forced to sell in a down market. Protip: Don't do that.
  - a8da6b0c91d 11y ago
    You're assuming the current price recovery is not a prolonged dead cat bounce. The next price event will be down, and then flat or declining for ages. There's no round two for the QE type events of the last ten years. Going forward Japan is the model. Assuming you don't get destroyed in a violent bout of deflation, you can anticipate near zero real price appreciation.
    - eclipxe 11y ago
      One day you and everyone else from ZeroHedge will be SPOT on. But as they say, markets can remain irrational far longer than you can remain solvent, or alive... My bet is on technology continuing to drive our economy to new levels of productivity and prosperity, along with it bringing real wealth creation, wage growth and price appreciation for real assets. Will there be corrections? Probably. Are we going to be Japan? Probably not, but if we are so be it.
      - 11y ago
jazzyk 11y ago
"20% downpayment for a $750K home (modest here) would be $150k which could take you a few years to save during which you're watching your dream home's price pull away from you" No, the price would not pull away from you. With 20% down payment required to complete a purchase, real-estate prices would actually come down to an affordable level, like they used to be. The requirement would eliminate all the clowns with 0% or 3% down payments who buy houses they can't afford, jacking up prices for everybody else.
dunham 11y ago
The model defaults to a 4% growth rate in home prices. If you want to assume a 7.5% growth rate, plug it in a few rows down from the down payment. The rent number will go negative, even with a 0% down payment. But you will be assuming that Seattle maintains a 7.5% growth rate over your specified time period. (It would be nice for me, I'm in contract on a house in Wallingford.)

nemo44x 11y ago

You may have to pay PMI if you don't have 20% equity. This can cost you a lot of money over time - especially if it will take you years to get 20% equity. And it likely will take you a long time due to the fact that mortgages are structured such that you're mainly paying interest on the loan the first few years creating nearly no equity. So if you buy a house with 10% down if may take you many years to get to 20% equity while paying PMI all the while. And exposing yourself to more foreclosure risk. If you don't have 150k (plus another 50k for buffer) liquid then you probably can't afford the 750k home and look for something cheaper or continue to rent and invest the difference between rent and mortgage to possibly stay ahead of the property values of your area. However, YMMV.

kbenson 11y ago
The same cases where you would want to go with 10% down instead of waiting to get 20% (such as increasing home prices in the area), are probably the same cases where you can refinance in a few years and take advantage of the increased assessment value to get 20% equity so you can drop PMI.
- nemo44x 11y ago
  Indeed - but now you are a speculator. There is no guarantee that the value will go up, that you will be able to refinance, that your credit will be any good then, that you will even have a job among a myriad of other things. I don't believe the typical person should take on that type of incredible risk.
  - kbenson 11y ago
    You are always a speculator when financing any portion of your house. You can lose your job in either scenario. By holding out until you have 20% down, you are speculating that the housing prices will not drastically increase in that time. > I don't believe the typical person should take on that type of incredible risk. If you can't afford it, you shouldn't do it. I'm talking purely about maximizing value by minimizing amount paid overall. Sometimes you will be better off waiting to get 20%, sometimes you are better off taking advantage of current market conditions. In both cases, there is the the chance that your decision ends up costing more than the other strategy, depending on how the market performs.

a8da6b0c91d 11y ago

Nobody ever seems to acknowledge the possibility of another across the board 30% drop in prices all over the country. This is my main reason for not buying. I think another severe, deflationary recession is almost an inevitability. Apparently I'm almost alone in remembering that housing can go down a lot.

mjevans 11y ago
The problem is entirely with how the 2008 bailouts were structured. There wasn't actually any market /correction/.
eclipxe 11y ago
Only matters if you need to sell. Look at the market now, it fully recovered and then some in most areas. The only people that lost out were those that were forced to sell in a down market. Protip: Don't do that.
- a8da6b0c91d 11y ago
  You're assuming the current price recovery is not a prolonged dead cat bounce. The next price event will be down, and then flat or declining for ages. There's no round two for the QE type events of the last ten years. Going forward Japan is the model. Assuming you don't get destroyed in a violent bout of deflation, you can anticipate near zero real price appreciation.
  - eclipxe 11y ago
    One day you and everyone else from ZeroHedge will be SPOT on. But as they say, markets can remain irrational far longer than you can remain solvent, or alive... My bet is on technology continuing to drive our economy to new levels of productivity and prosperity, along with it bringing real wealth creation, wage growth and price appreciation for real assets. Will there be corrections? Probably. Are we going to be Japan? Probably not, but if we are so be it.
    - 11y ago

jazzyk 11y ago

"20% downpayment for a $750K home (modest here) would be $150k which could take you a few years to save during which you're watching your dream home's price pull away from you" No, the price would not pull away from you. With 20% down payment required to complete a purchase, real-estate prices would actually come down to an affordable level, like they used to be. The requirement would eliminate all the clowns with 0% or 3% down payments who buy houses they can't afford, jacking up prices for everybody else.

dunham 11y ago

The model defaults to a 4% growth rate in home prices. If you want to assume a 7.5% growth rate, plug it in a few rows down from the down payment. The rent number will go negative, even with a 0% down payment. But you will be assuming that Seattle maintains a 7.5% growth rate over your specified time period. (It would be nice for me, I'm in contract on a house in Wallingford.)