Quote:
Originally posted by Rick Lee
If you really think you're gonna save up a 20% down payment in So. CA, then more power to you. You'll be renting for a very long time. A loan of above 80% LTV is not necessarily a sucker loan. If you plan to live in the house for a long time OR if it appreciates nicely OR if you can pay down the 2nd trust quickly, you'll be ahead of the game and you'll be a homeowner. Even a 100% loan is not a sucker loan, unless you make the minimum payment and/or accrue negativity equity. You have to live somewhere. Might as well take that tax write-off and knock down your principle if you can't stand debt.
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I agree with you to a point. I see 95% (or even 100%, in some cases) financing as fine - IF (big if) it involves a fixed-rate, no neg-amortization, etc. The big sucker loans are the option-ARMs, 2-1, 3-1 or even 5-1 ARMs and certain I/O products. I'd consider an I/O product if it were fixed for about 10 years and allowed for 95% or 100% financing and no PMI. That would open doors. The crapola option-ARM products I wouldn't touch with someone else's 10-foot-pole.
In a perfect world, I'd simply say save up the 20% for a down, a fixed rate, 30-year fixed and forget about it from there and live worry-free from there on. Problem is, ANY place worth living in around here is about $300k. Minimum. 20% is $60k. I don't exactly have that available in liquid assets. Plus costs. That's about $70k - or the cash purchase price of a brand new 911. With nothing in reserve for repairs, fixing up, etc. The 20% requirement is a barrier to entry that simply can't be overcome without winning the lottery, having a big inheritance, or living on Ramen for 10+ years. None of which I'm able (or willing) to do. It's not worth it.
I see the wisdom of banks/lenders requiring people to put in a chunk of their own money up front (especially in a downward market) to avoid people saying "this place is losing value - screw it" and walking away, leaving the lender holding the bag. However, I think we've reached a point where it's SO unrealistic to expect people to save up that kind of money just to get in the door of a crappy fixer-upper or glorified apartment "conversion", it's more of a liability to the system than an asset. It prevents a lot of people (like me) from taking the whole thing more seriously. However, the downside of going with lower down payment requirements is people are more and more likely to turn in the keys and say "eff this" when things go south (which they're doing right now).
Should be interesting to see how this shakes out. Personally I'm betting on significant downward pressure on prices. I'm predicting about a 30% drop in values in the SoCal market over the next 2-3 years. It's simply WAY too out-of-whack right now.