Down Payment Needed for Housing Stability

Don Reedy April 20, 2016

Real Estate Down Payment

“WASHINGTON (AP) — Short of savings and burdened by debt, America’s millennials are struggling to afford their first homes in the face of sharply higher prices in many of the most desirable cities.

Surveys show that most Americans under 35 lack adequate savings for down payments. The result is that many will likely be forced to delay home ownership and to absorb significant debt loads if they do eventually buy…….

The San Diego Union’s story about Down Payments has me thinking today. Here’s why.

Down Payments Are Needed to Protect Home Owner’s Equity

Why not just have zero down, or really push the 3% touted in this article as a means to provide an easier route to purchasing a home?

It’s stability.

When you put 10-20% down, the bank has enough equity to ensure that their loan is safe. Yeah, I know that severe situations like we experienced in the last 7 years occur once in a very long time, but as a rule housing prices rise with inflation, fall when local economies fail, and their values are usually not in jeopardy if we are in a sustainable economic situation nationally.

Down PaymentDown payment planning has to start somewhere, right? And when you’ve got enough money saved to make your journey into the purchase of a home viable, then and only then should you make that move.

I’m pretty sure that when a bank makes a loan with only 3% down that they have to be pretty insecure about the future of that loan. Remember, loans are against the property….not the borrower. This means, as all of us probably know by now, that when payments stop the only recourse the bank has is to repossess the home. They can’t go after the homeowner for their money.

 

Making a Down Payment of at Least 10% Makes The Most Sense

I realize that if you live in San Francisco my premise might be flawed. And even here in San Diego where home prices have continued to rise at a steady rate over the last couple of years, saving $50,000 for a 10% down payment on a median priced $500,000 home is pretty difficult.

But once done, both the bank, and the banking loan system, as well as the purchaser are protected from the dire consequences of the small fluctuations in home values that occur over time. And ipso facto that means home values and protections for the long-term success of both home buyers and home sellers is protected.

Here’s my spotlighted home of the day. It’s listed by my friend Leonard Kuhlman, who knows Fire Mountain better than anyone, and it’s a beauty. Do you want to finance this home with 10-20% down? Contact me and I’ll put you in touch with a couple of great lenders to compare and provide you with information.

See you in escrow!

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