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Three Lessons to Learn From the Housing Fiasco

The deflated housing bubble has had widespread effects that continue to poison the lives of many Americans and the greater economy. As much as we are faced with stories of foreclosure after foreclosure, the results of a recent survey by real estate website Zillow suggest that many aren't taking away important lessons from the housing debacle. ABC News Consumer Correspondent Elisabeth Leamy is discouraged by this and offers a few key takeaways from the popped bubble.

  1. 17 percent of people say they plan to buy a house with zero percent down. Leamy says: "Zero-down loans are not available anymore . . . A 20 percent down payment makes a lot more sense. Time to start saving up."
  2. 55 percent of people say the reason they want to buy a new home is so they can get a bigger one than they have now. Leamy's reaction: "Hey, if your family can afford a bigger house in this economy buy it . . . But for those who can't afford it, it's time to get comfortable with more modest living."
  3. 30 percent of home buyers told Zillow they plan to own their next home for five years or less. Leamy's response: "Experts are horrified. Most real estate watchers are saying you should not bother buying a home these days unless you plan to stay for at least seven years. Why? Because the market is volatile."
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T-S T-S 7 years
Hoooly cow that was long. Feel free to skip. Here's the gist: everyone's different. Some people will put down small down payments and faithfully make their payments forever, some people will put 20% down and foreclose a year later. And vice versa.
T-S T-S 7 years
I think some people are overestimating the connection between one's ability to save a down payment and one's ability to make mortgage payments. "If you can't save for your down payment, you probably can't afford owning the home in the first place. You should have at least six months of living expenses (mortgage) plus the money for insurance, property tax, and an emergency fund if something unexpected happens to your house. All of those things added up get pretty close to 10-20% of your home's value, so if you can't save that much in the first place, you should probably think twice about buying a house." Actually, 6 months of mortgage payments, property taxes, insurance, HOA and electric bills all added up equal approximately 4% of what I paid for my home. Plus, even if I were to save up $50,000, which is about what a 20% down payment would have been for me, if I then put it down on my house, I would have no savings. So I guess to meet those standards I would need to save up $60,000 (my 20% down payment plus $10,000 in emergency living expenses). Personally, I would rather put less down but to have that money on hand in case of an emergency (lost job, health issue, whatever) because ultimately not being able to make the monthly mortgage payment is what will get you in trouble. "It may take years to save it, but it's not unrealistic." In some cases. Some people are lucky enough to be in a position where they can put a lot of money into savings every month. (When my parents first married, my mom barely bothered to cash her paychecks, they sat in a drawer because they lived off my dad's income!) My family has two people with moderately paying jobs. I'm a saver: We're able to put 12% of our income into a retirement fund, and we put another $700 each month into a regular savings account, but at that rate, it would take seven years to save up the $60,000 some people think we should have had before buying in order to responsible by their standards. I don't think 0% down mortgages are a good idea (for the lender or lendee) but first time home buyer programs that help younger families buy their first home for something like 3.5% down seem reasonable to me. If you have the income to make the monthly payments but simply aren't old enough to have even been legally allowed to work long enough to have that kind of savings, why not? Instead of waiting, we took advantage of low interest rates, tax credits, and a buyer's market and have made the best financial decision for us. Seven years from now, we'll have $37,000 in equity in our home (assuming prices remain stable, but they've gone up consistently in this neighborhood), not to mention a huge savings by reducing our tax burden since we can write off our mortgage interest and property tax. Which is not to say everyone should go out and buy a home, but that rules like "Anyone who doesn't have $50,000 in savings should just keep renting" are silly because everyone is different. It's the same as "If you never buy a house you'll never be able to retire." (My parents didn't buy a home until they were in their fifties and they are more than financially stable.) There are no hard and fast rules except maybe "You should spend less than what you earn." I was vehemently opposed to homeownership until I looked at the math with the current market in our area and interest rates and tax credits and realized we were not making a good financial decision for our particular circumstances if we kept renting. Bottom line, everyone's circumstances are different. "Instead of paying your mortgage once a month pay twice (bi-weekly). that equals one extra payment a year and you will save so much interest that you will pay your house off in 23 years instead of 30." Just be careful because some banks will actually charge extra to do this. Our bank charges $6 per payment to do anything other than make a regular once a month payment on the first. (That is, they charge if you want to pay biweekly, twice a month, on the 15th or any other day, etc.) So what we do instead is just set our normal once a month payment to a higher amount (right now we're paying an extra $50 a month, which takes a year and a half off of our total time, but I will be increasing that amount after we build up our savings which were of course depleted when we bought a home.)
syako syako 7 years
Thanks for the tip Liss. I'll definitely consider that when the "day" arrives. ;)
starofsorrow starofsorrow 7 years
When I was growing up, I was under the impression that when you brought a house, it was with the intention that you'd stay there for a good deal of time, not just five years or so. It disappoints me that I see so many people just use the houses like rental property, and they don't take the time to consider that buying a home is a investment, but it's also gonna be a place where you stay for a good period of time. If I ever buy a home, I'm buying it with the intention that I will STAY in that one place for a long, long time.
Liss1 Liss1 7 years
Syako, just a tip since you mentioned having to pay for the house for 30 years, Instead of paying your mortgage once a month pay twice (bi-weekly). that equals one extra payment a year and you will save so much interest that you will pay your house off in 23 years instead of 30. It's definately worth it :)
Spectra Spectra 7 years
I'm with everyone that thinks you should definitely have a 20% down payment before you think about home ownership. We rented for 2 years before we had saved enough to put 20% down on a nice starter home. I suppose we could have gone with a 0% down payment and had to pay PMI, but we really didn't want to do that. Home ownership isn't something that you are somehow entitled to...everyone's situation is different and the housing market is different in every area of the country. For example, I know that if we lived in Chicago or someplace like that, we would have to save a LOT more for a down payment so we'd rent for a longer period of time. Either that or we wouldn't own at all...sometimes, renting just makes more sense. That's just kind of how it is.
Chouette4u Chouette4u 7 years
Everyone should aim for 20% down, 10% at the minimum. If you can't save for your down payment, you probably can't afford owning the home in the first place. You should have at least six months of living expenses (mortgage) plus the money for insurance, property tax, and an emergency fund if something unexpected happens to your house. All of those things added up get pretty close to 10-20% of your home's value, so if you can't save that much in the first place, you should probably think twice about buying a house. We're still saving for our house, and the down payment DEFINITELY sucks. We live in an expensive real estate market and a three bedroom mediocre "starter house" costs at least $600,000-$800,000. However, I really want to make sure we wait to buy until we can really afford it, and this current mortgage crisis totally reaffirmed my beliefs about this. In mid-2006, my friend's real estate agent father kept trying to convince us to buy a condo with no money down, and I am so glad we didn't.
syako syako 7 years
all right :highfive: :)
Smacks83 Smacks83 7 years
Syako, if you are the 1% I guess me being of the same mind as you on this bring it up to 1.1% Yay, our numbers are increasing! lol I feel the same way though, if I can't put down 20% then, I would probably just wait until I could.
syako syako 7 years
We've been renting and saving and we'd love to be able to pay cash for a house, but that probably won't happen, but even putting down more than 50% would make both of us sleep much easier at night. I'd rather rent than have a bank owned house for 30 years. And I know I'm weird and probably only like 1-2% of Americans would agree with me on this one. :)
syako syako 7 years
I think it is :shrug: It may take years to save it, but it's no unrealistic.
Liss1 Liss1 7 years
I think 20% is too much to have to put down. Like our house cost $210,000 and that is one of the cheaper ones where i live. That means we should have put down $42,000 there is no way we could have saved that kind of money. We did put money down, just not 20%. Since the rents here are really high and our mortgage is only a few hundred more than our rent was it makes more sense to own. $42,000 is just not a realistic amount for most people.
syako syako 7 years
Blech. Buying houses scare the crap out of me. I'm sticking to renting until we're ready. And wanting to buy a home with 0% down makes me so mad. If you can't wait to save up at least 20%, perhaps you should keep renting...
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