Home Interest only mortgage??

[littlelysser]

Date: 8/17/2008 2:09:52 AM
Author: Dancing Fire

Date: 8/16/2008 11:26:31 PM

Author: littlelysser

FWIW, I don''t think it is necessary to put down 20%. DH and I bought our house four and a half years ago. We both have good credit. We put down 10%.


We worked with a great mortgage broker and ended up getting a great fixed rate on the 80% and a line of credit for the second mortgage - which was the other 10%.


If you live in an area with a stable real estate market - a highly desirable neighborhood, whatever - there is a real benefit to buying as soon as you can afford to do so. I''m really glad that we have spent the last four and a half years building equity and enjoying some appreciation (not much, but a steady amount per year) rather than paying rent.


I do think it is important to have something to put down, though. We weren''t going to buy unless we had enough for 10% and closing costs. The idea of mortgaging 100% of the cost of our house made us both uncomfortable. Several of my friends bought places with no money down and it has worked out for them, but that was a MUCH different economy...

not in our area. the people that bought a home in our area 4.5 yrs ago are way under water today,even with a 10% dp some would still give up their home.

Well, it sounds like you live in an area that experienced some pretty significant home inflation. That would really stink. Although I''m not sure that putting down 20% would magically chance the equation in your area.

I am very lucky to live and own in a city where home prices were never inflated. Thus, there hasn''t been any big market backlash. In fact, my parents are currently looking to move back to the area and were amazed by the fact that home prices really haven''t fallen at all here.

We have no desire to sell our home right now, but if we did, even in this market, we''d ask for about 20% over what we paid. In part because of improvements we made and in part because of the appreciation in this market.

Although I am confused as to what you mean by "give up their home." Are you saying that putting an extra 10% down would make the difference between being able to make payments on the home and foreclosure? Cause that is silly.

FWIW, I think the cause of the mortgage crisis has very little to do with the amount of money put down. I think it stems from the subprime mortgages and the mortgage companies giving mortgages to people who had NO business getting one or allowing someone with a modest income to qualify for a $500k home. DH and I were stunned when we found out the amount of the mortgage we qualified for...

Of course, we knew what we wanted to spend, and ended up spending several hundred thousand dollars less than we could have - because we knew the mortgage would be INSANE otherwise...and we didn''t want to be house poor.

Unfortunately, I think there were a lot of people out there who said, well, hey, I can qualify for a $500k mortgage...so why would I buy a $200k house? Voila - you have a person who has purchased a home WAY beyond their means and they simply cannot afford to make the monthly payments, regardless of whether they put down 10 or 20%

 

[neatfreak]

Date: 8/16/2008 11:26:31 PM


Author: littlelysser

FWIW, I think the cause of the mortgage crisis has very little to do with the amount of money put down. I think it stems from the subprime mortgages and the mortgage companies giving mortgages to people who had NO business getting one or allowing someone with a modest income to qualify for a $500k home. DH and I were stunned when we found out the amount of the mortgage we qualified for...


Of course, we knew what we wanted to spend, and ended up spending several hundred thousand dollars less than we could have - because we knew the mortgage would be INSANE otherwise...and we didn't want to be house poor.


Unfortunately, I think there were a lot of people out there who said, well, hey, I can qualify for a $500k mortgage...so why would I buy a $200k house? Voila - you have a person who has purchased a home WAY beyond their means and they simply cannot afford to make the monthly payments, regardless of whether they put down 10 or 20%

LA: I think the point you make here is exactly what DF is trying to say. There are MANY MANY people who "qualified" for mortgages that they couldn't handle, with 0% or other low amounts down. If these same people had been required to put 20% or even 10% down, many would have realized they COULDN'T actually afford the payment and might have chosen a smaller and more manageable mortgage.

If you can put 20% down on a huge house then you are more than likely able to pay for said house because you understand what it means to SAVE. By allowing many people to put 0% down on huge mortgages it never "tested" them about whether they really could afford it or not.

I don't think he's saying that not putting 20% down for everyone is a bad idea, but for those people who don't really understand what they can truly afford in a house, making them put 20% down certainly puts them in a much better position equity wise and gives some more wiggle room should their house price fall, etc.

Obviously you and your hubby actually understand what it means to be able to afford a mortgage payment and did the right research, so I don't think anyone is saying that it was a bad idea for YOU to buy. Just that it's a bad idea for many people to buy without a significant chunk down.

 

[Pandora II]

Indeed!

I was horrified when I found out how much a bank would be prepared to lend us - and this was in the last few months AFTER the credit crunch has hit.

We''ve borrowed around half that amount and well within the amount I was happy to use.

We also put 20% down on each property when they were bought and have a 20% cushion on the remortgage.

 

[littlelysser]

NF - I know DF wasn''t saying we shouldn''t have bought our home the way we did. I didn''t take it personally at all...

Just trying to put the other side of the coin out there...and explain why I didn''t think 20% needs to be put down before buying a home is a good financial move.

 

[Haven]

Banks are still qualifying people for outrageously huge mortgages, in my opinion. When we applied for our first pre-approval we were shocked at the amount they were willing to lend to us. And this was all after the mortgage crisis was in full swing. That''s why we chose to buy a home that we qualified for on my income alone, we didn''t want to get in over our heads.

And I must admit, after looking at homes in our chosen price range for several months we were tempted to move that range up and find something nicer because we knew we could qualify for it. This is the danger--home buyers might look for properties for which they can qualify, not which they can reasonably afford. I''m glad we stuck to our original plan, I would hate to feel like we had to scrimp and save every penny just to pay our mortgage.

 

[Dancing Fire]

Date: 8/17/2008 9:46:04 AM
Author: littlelysser

Date: 8/17/2008 2:09:52 AM
Author: Dancing Fire

Date: 8/16/2008 11:26:31 PM

Author: littlelysser

FWIW, I don''t think it is necessary to put down 20%. DH and I bought our house four and a half years ago. We both have good credit. We put down 10%.


We worked with a great mortgage broker and ended up getting a great fixed rate on the 80% and a line of credit for the second mortgage - which was the other 10%.


If you live in an area with a stable real estate market - a highly desirable neighborhood, whatever - there is a real benefit to buying as soon as you can afford to do so. I''m really glad that we have spent the last four and a half years building equity and enjoying some appreciation (not much, but a steady amount per year) rather than paying rent.


I do think it is important to have something to put down, though. We weren''t going to buy unless we had enough for 10% and closing costs. The idea of mortgaging 100% of the cost of our house made us both uncomfortable. Several of my friends bought places with no money down and it has worked out for them, but that was a MUCH different economy...

not in our area. the people that bought a home in our area 4.5 yrs ago are way under water today,even with a 10% dp some would still give up their home.

Although I am confused as to what you mean by ''give up their home.'' Are you saying that putting an extra 10% down would make the difference between being able to make payments on the home and foreclosure? Cause that is silly.

silly ???...if the buyers put an extra 10% down their monthly payments would of been lower,plus their house mite not be upside down even in today''s market,thus they will not "give up their home" so easily.

FWIW, I think the cause of the mortgage crisis has very little to do with the amount of money put down. I think it stems from the subprime mortgages and the mortgage companies giving mortgages to people who had NO business getting one or allowing someone with a modest income to qualify for a $500k home. DH and I were stunned when we found out the amount of the mortgage we qualified for...

that is the main reason why we have this housing crisis today. think about this...if all buyers were require to put 20% down what percentage of these buyers do you think would be able to come up with the 20% down? the answer is ...almost 0%. since 99% of these dreamers would of been eliminated in the first place, we wouldn''t have this mortgage crisis today. so yes, those 0 down subprime loan cause this mess.

 

[Dancing Fire]

Date: 8/17/2008 9:54:45 AM
Author: neatfreak

Date: 8/16/2008 11:26:31 PM


Author: littlelysser

FWIW, I think the cause of the mortgage crisis has very little to do with the amount of money put down. I think it stems from the subprime mortgages and the mortgage companies giving mortgages to people who had NO business getting one or allowing someone with a modest income to qualify for a $500k home. DH and I were stunned when we found out the amount of the mortgage we qualified for...


Of course, we knew what we wanted to spend, and ended up spending several hundred thousand dollars less than we could have - because we knew the mortgage would be INSANE otherwise...and we didn't want to be house poor.


Unfortunately, I think there were a lot of people out there who said, well, hey, I can qualify for a $500k mortgage...so why would I buy a $200k house? Voila - you have a person who has purchased a home WAY beyond their means and they simply cannot afford to make the monthly payments, regardless of whether they put down 10 or 20%

LA: I think the point you make here is exactly what DF is trying to say. There are MANY MANY people who 'qualified' for mortgages that they couldn't handle, with 0% or other low amounts down. If these same people had been required to put 20% or even 10% down, many would have realized they COULDN'T actually afford the payment and might have chosen a smaller and more manageable mortgage.

If you can put 20% down on a huge house then you are more than likely able to pay for said house because you understand what it means to SAVE. By allowing many people to put 0% down on huge mortgages it never 'tested' them about whether they really could afford it or not.

I don't think he's saying that not putting 20% down for everyone is a bad idea, but for those people who don't really understand what they can truly afford in a house, making them put 20% down certainly puts them in a much better position equity wise and gives some more wiggle room should their house price fall, etc.

Obviously you and your hubby actually understand what it means to be able to afford a mortgage payment and did the right research, so I don't think anyone is saying that it was a bad idea for YOU to buy. Just that it's a bad idea for many people to buy without a significant chunk down.

NF

i replied to LA's post before i saw yours.

 

[Beacon]

One rough guide to mortgages is that if you are putting down about 20%, the mortgage you qualify for should be about 3.5 times your total gross combined salaries at rates around 6.5-7%. There are a lot of assumptions in there, but like I said, it''s a rough estimate.
If the bank gives you a qualification for a much larger multiple of your salary, there is something going on that is unusual.

I don''t think it is needed that people must put down 20%. In some areas, this is a large amount of money and acts as a big barrier to purchase. Some couples have very high salaries and can carry the larger payments and want to buy *now*. DF does have a good point that 20% down would have totally stopped the speculators in their tracks and the subprime problem would not have happened. However, this is not how the housing market has operated for many, many years.

This is a cyclical game and it has all been done before. What one finds is that at market tops, people are extraordinary leveraged and don''t mind. Then at the bottom (when leverage is probably a pretty good idea) no one has the guts to do it. It always happens, every market, stocks, real estate, commodities etc. It''s human nature.

This last one was a doozy though - really went so far and now the recovery will take a bit, but it will happen.....

 

[Honestly]

I doubt those even exist anymore. It''s one of the major mortgage crisis culprits.

 

[Dancing Fire]

Date: 8/17/2008 10:59:30 PM
Author: Beacon
One rough guide to mortgages is that if you are putting down about 20%, the mortgage you qualify for should be about 3.5 times your total gross combined salaries at rates around 6.5-7%. There are a lot of assumptions in there, but like I said, it''s a rough estimate.
If the bank gives you a qualification for a much larger multiple of your salary, there is something going on that is unusual.

I don''t think it is needed that people must put down 20%. In some areas, this is a large amount of money and acts as a big barrier to purchase. Some couples have very high salaries and can carry the larger payments and want to buy *now*. DF does have a good point that 20% down would have totally stopped the speculators in their tracks and the subprime problem would not have happened. However, this is not how the housing market has operated for many, many years.

This is a cyclical game and it has all been done before. What one finds is that at market tops, people are extraordinary leveraged and don''t mind. Then at the bottom (when leverage is probably a pretty good idea) no one has the guts to do it. It always happens, every market, stocks, real estate, commodities etc. It''s human nature.

This last one was a doozy though - really went so far and now the recovery will take a bit, but it will happen.....

stock market bubble bursted in 2000
real estate bubble bursted in 2005
commodities bubble bursted five weeks ago.

btw; when we bought our house in 1986 the bank didn''t want to talk to us unless we came up with 20% down.

 

[movie zombie]

in 1992 i couldn''t get a bank....or realtor for that matter....to talk to me unless i had 20% down. in 1993 i bought with 20% down because i saved more and the owner carried back a 2nd for about 5% which i paid off in 5 years. i had to prove that the $ for the down was mine and not a recent gift from a relative. i also had to prove i had $ in the bank to cover the house payment for several months to cover living expenses [401k qualifies to fulfill that requirement]. underwriters went through my last 3 years of IRS filings. in otherwords, i had to prove that i was capable of making housepayments and repairs for a period of time independent of my salary.

while deregulation opened the door for more people to own homes, it was driven by greed and now we face not only taxpayer $ bailing out those greedy lenders, the world banking system is in jeopardy because our banks and government sold those junk loans advertising them as great investments.


movie zombie

 

[Beacon]

Date: 8/18/2008 4:28:20 AM
Author: Dancing Fire

Date: 8/17/2008 10:59:30 PM
Author: Beacon
One rough guide to mortgages is that if you are putting down about 20%, the mortgage you qualify for should be about 3.5 times your total gross combined salaries at rates around 6.5-7%. There are a lot of assumptions in there, but like I said, it''s a rough estimate.
If the bank gives you a qualification for a much larger multiple of your salary, there is something going on that is unusual.

I don''t think it is needed that people must put down 20%. In some areas, this is a large amount of money and acts as a big barrier to purchase. Some couples have very high salaries and can carry the larger payments and want to buy *now*. DF does have a good point that 20% down would have totally stopped the speculators in their tracks and the subprime problem would not have happened. However, this is not how the housing market has operated for many, many years.

This is a cyclical game and it has all been done before. What one finds is that at market tops, people are extraordinary leveraged and don''t mind. Then at the bottom (when leverage is probably a pretty good idea) no one has the guts to do it. It always happens, every market, stocks, real estate, commodities etc. It''s human nature.

This last one was a doozy though - really went so far and now the recovery will take a bit, but it will happen.....

stock market bubble bursted in 2000
real estate bubble bursted in 2005
commodities bubble bursted five weeks ago.

btw; when we bought our house in 1986 the bank didn''t want to talk to us unless we came up with 20% down.

Just my point DF. At tops of any market you see speculation aided by the use of leverage. These tops you mention are just the same. So we just did it in real estate too. Typical.

I have a pretty good indicator of tops. Go to the local market and look at the personal finance magazines. People liike Susie Orman and so on. They will be featuring stories about how so and so little couple just retired at age 35 off of their proceeds from: day trading (stock top), real estate investment (real estate top), whichever. The articles will tell you how you must own this item for your future retirement, etc. This is the TOP, get out of it whatever it is.

Now all those magazines are featuring the idea of keeping money in your money market account, FDIC insured please. Probably time to put some money to work pretty soon!

 

[Dancing Fire]

Beacon
i have a better indicator of tops. in 2000 when i go out to eat i hear everybody around us talking about the stock market. i knew the top was near. in the spring of 2005 everybody was talking about housing,thinking they can't go wrong buying investment homes.

 

[Tacori E-ring]

I had relatives that had an interest only b/c they were only in the country for a few years. I think in that case it does make sense. I am not sure how much, if anything, they put down.

 

[Allison D.]

Friends of mine did an IO loan because their plan was to be in the place for 5 or so years and then move elsewhere that was more conducive to starting a family.

In their case, their house appreciated nearly $250K during that time. Because they planned to be out of it before the loan ballooned up, it was a good choice for them.

It wouldn''t be a workable choice for my hub and I; we went into our purchase with different game plan. We planned to buy and stay for at least 20 years. Hence, we wanted a fixed rate and did an 80/10/10 loan. Best thing we ever did. Waiting to save the remaining 10% would have put us in the position of paying rent for another year or two at nearly $20k annually, and that just wasn''t smart.

Excellent credit allowed us to get an 80/10/10. First mortgage interest rate was 5.625; second was only 7.625 and BOTH were 30-year fixed rate loans. We paid off the second mortgage in three years, and we now push the money we used to pay monthly at the 2nd toward the principal on the primary.

 

[Dancing Fire]

Date: 8/20/2008 12:47:28 PM
Author: Allison D.

Friends of mine did an IO loan because their plan was to be in the place for 5 or so years and then move elsewhere that was more conducive to starting a family.

In their case, their house appreciated nearly $250K during that time. Because they planned to be out of it before the loan ballooned up, it was a good choice for them.

It wouldn''t be a workable choice for my hub and I; we went into our purchase with different game plan. We planned to buy and stay for at least 20 years. Hence, we wanted a fixed rate and did an 80/10/10 loan. Best thing we ever did. Waiting to save the remaining 10% would have put us in the position of paying rent for another year or two at nearly $20k annually, and that just wasn''t smart.

Excellent credit allowed us to get an 80/10/10. First mortgage interest rate was 5.625; second was only 7.625 and BOTH were 30-year fixed rate loans. We paid off the second mortgage in three years, and we now push the money we used to pay monthly at the 2nd toward the principal on the primary.

Alj
for every IO loan winner i can name you 1000 losers.

look at all those that are homeless today as i predicted it would happen 2.5 yrs ago.

 

[littlelysser]

I think everyone understands your position on this matter, DF. Namely that every home buyer must put down 20% and must not have an interest only loan.

Anyone that does anything to the contrary should not purchase a home.

The reality of the situation is that different mortgage scenarios work for different people, and one size does not fit all.

 

[absolut_blonde]

Date: 8/20/2008 8:53:10 PM
Author: littlelysser
I think everyone understands your position on this matter, DF. Namely that every home buyer must put down 20% and must not have an interest only loan.

Anyone that does anything to the contrary should not purchase a home.

The reality of the situation is that different mortgage scenarios work for different people, and one size does not fit all.

I agree. I''m not a huge fan of interest-only loans for a number of reasons, but they have their (limited) uses. As for 20%, I think everyone else has already stated some good reasons as to why that is not always feasible nor necessary.