For many years leading up to the real estate bubble, it was almost unheard of to purchase a home without at least a 20% down payment. This was the bank’s way of making sure you had adequate skin in the game and started off with enough equity that, if you ran into payment problems, the bank wouldn’t end up with a house worth less than the mortgage.
Then, during the housing bubble, not only were people able to get massive loans for homes they couldn’t afford, but they were able to get these loans with little to no money down. If you had a pulse, you got a mortgage!
Of course, we know now this was something that not only expanded the bubble, pushing home prices to irrational and unsustainable levels, but also exacerbated the deflation of the bubble.
According to an article published on Yahoo! Finance, courtesy of The Street, not only are the days of no-money-down mortgages done, but we may be very close to returning to the days of at least 20% down payments.
In the article, entitled “Return of 20% Home Down Payment Looms,” Joe Mont writes the following:
The public comment period concludes Monday for potential mortgage-related provisions spawned by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Among the potential outcomes is that homebuyers could be required to front a higher down payment — as much as 20% — before they can legally qualify for a mortgage loan.
The proposed changes are being reviewed by federal regulators, among them the Treasury Department, Federal Reserve Board, Federal Deposit Insurance Corp., the SEC, the Federal Housing Finance Agency and Department of Housing and Urban Development. There is no set timeline for when final decisions will be made.
Many in the real estate sector have joined forces to fight such a change aimed at so-called Qualified Residential Mortgage loans, arguing that a 10% or 20% down payment mandate would deliver yet another damaging blow to the floundering housing market.
In past decades, a 20% or more down payment was standard. The lower the down payment, according to conventional wisdom and ongoing research, the greater the risk of default.
To be perfectly honest, I’m fine with going back to the days of requiring 20% down payments. I feel as if many people now believe owning a home is a right, however, it most certainly is not. Owning a home should be something you have to work towards and save for. Just because you have a pulse — or a job and credit worthiness for that matter — doesn’t mean you are entitled to owning a home.
Don’t get me wrong, I’m all for people owning homes. I think it promotes people taking better care of their property and taking pride in their community, and it provides the owner with a sense of accomplishment. However, as I said before, I believe home ownership is something that has to be earned, and requiring significant down payments is a great way to make sure that happens.
What are your thoughts? Am I heartless and crazy? Do you agree with requiring higher down payments? Leave your comments below and, as always, please share this post using the social bookmarking buttons below.