Buying a Home: The 20% Down Payment is Making a Comeback
Back when my parents bought their first home, a 20% down payment was a must. You weren’t even considered for home mortgage loan unless you had 20% down. Straight-up. No fancy piggy-back loans or other “creative financing.” Nope. You had to have a 20% down payment.
Somewhere between when my parents bought their first home 30 years ago and my husband and I bought our first home last year, the times changed. (We bought our home with a rather small down payment — no 20% for us.) You could get fancy financing. Buying a home was possible with a 0% down payment. Private mortgage insurance could be purchased to avoid the 20% down payment requirement.
But the mortgage lenders are starting to wonder if maybe the way things used to be done really were better. AllFinancialMatters reports that some mortgage lenders are starting to require a 20% down payment again. At the very least, some are requiring 10% down. You might still find someone that will accept 5%. While I think 20% down may be a litle overkill with home prices now (my parents put 20% down on a $50,000 house — $10,000), when 20% down on a what passes as a modest home at $150,000 is $30,000. But it wouldn’t hurt to require that someone buying a $150,000 home at least have $15,000 for a down payment.
The fact of the matter is that not everyone is in a financial position to own a house. It would be nice if everyone could buy a home, but it just isn’t feasible. Some people just aren’t there. They don’t have the financial stability to pull it off in a way that is sustainable. And trying to get them there — through low teaser rates, interest only loans, creative financing and 0% down payment options — just won’t work out well in the long run.
Obviously.
November 24th, 2008 at 12:19 pm
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