
How Home Loans Have Changed since 2000 - bradleybuda
http://www.zillow.com/research/conventional-mortgage-changes-12999/
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muninn_
It depends on the circumstances. I have a great paying job and good job
security and just bought a condo. Had I waited to have 20% down, I would have
had to wait at least 10 years, and in the meantime still pay rent somewhere.
So I can either go in with very little down (in my case I actually walked out
with a check) so that I can pay extra each month toward the principle, or I
can save that down payment and essentially pay for somebody else's property.
Many of my friends simply can't afford to save for a house because rent is so
high that they just don't have savings. You can argue that they should move to
cheaper housing (and they did) but at some point the balance between cheap and
safe will tip away from safety.

~~~
nugget
What would you do if property values declined such that you were underwater
20% on your condo? It seems like some minimum amount of equity is a
stabilizing force in turbulent markets, the lack of which contributed to some
of the unpleasantness in 2008.

~~~
Gibbon1
The unpleasantness in 2008 onward was a conscious decision by the Obama
administration to not bail out underwater home owners.

Banks were bailed out. Large businesses were bailed out. Ordinary homeowners
caught up in a massive housing bubble, reviled and sent down the river.

~~~
dragonwriter
> The unpleasantness in 2008 onward was a conscious decision by the Obama
> administration to not bail out underwater home owners.

You might be able to make an argument that the unpleasantness in 2009 onward
(or, more specifically, late January of 2009 onward) was the fault of some
conscious decision of the Obama administration, but as popular as it has been
with the Trump campaign recently, pretending that the Obama administration is
responsible for things which occurred before his inauguration is indefensible
without some kind of strong evidence for the extraordinary claim of
retrocausality.

(Also, factually, the administration decided to bail homeowners out in a
variety of ways, though perhaps not as direct, universal, and significant of a
bailout as some advocates -- myself included -- would have preferred.)

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douche
With the state of rental rates at the moment, if you can scrape any kind of
down payment together, it's worthwhile to buy rather than rent. Even if you
are on a 3.5% down FHA loan, the mortgage + taxes + PMI is considerably less
than renting the equivalent property.

If you're smart, buy a duplex, and basically get your tenant to pay the
mortgage for the whole building.

~~~
jandrewrogers
That very much depends on where you live. I have a pretty thorough spreadsheet
for modeling this kind of thing.

Even if I had a 20% down payment, fully accounted for tax deductions, payment
against principal, etc, and ignoring costs like maintenance, my lease in
Seattle is significantly _less_ than the monthly cost of a mortgage for the
same place.

This is true more often than people expect. Many landlords are not covering a
mortgage payment as large as yours would be, or any mortgage at all, with your
rent check. Their cost basis is not your cost basis so it is not unexpected
that the market clearing price for rent is below the monthly cost for many
people to buy the same property.

~~~
derefr
> Many landlords are not covering a mortgage payment as large as yours would
> be

Why not? I can understand already owning the property, but do property-
management companies just get better mortgage rates or something? Does that
mean I could theoretically save money by buying a house as a company and then
renting that house to myself as an individual?

~~~
jandrewrogers
There are a number of reasons beside owning the property outright. They can
make a bigger down payment than you can, so the total debt is lower. They
bought it at a much lower price many years ago. Their total capitalization is
much larger than yours, which drives interest rates toward zero. Their tax
basis is different than your tax basis would be.

It is straightforward financial math. If they have more capital than you or a
different tax basis, they can have a lower monthly cost basis than you.

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adamwi
I find figure 7 very interesting, "Share of newly mortgaged homes by property
type". I seems like a very large shift in what types of homes that are
mortgaged (e.g. condos going from ~19% to ~43%).

Anyone with deeper insight in this trend? As an outsider European I was not
aware of such a strong urbanization trend in the US, or are there other
mechanisms in play as well?

~~~
r00fus
Could be affordability, as single-family homes become unaffordable in many
markets.

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techsupporter
I found this interesting, especially the bit about the condos since I am part
of that trend (selling a SFH and moving to a condo unit).

The graphs of percentage-down payments looks exactly backwards from what I
might have guessed had someone asked me just prior to reading this. In the
run-up to the meltdown, most borrowers were still putting between 5 and 20
percent down. (I think that blue line to the left of the 5 value is "3.5%," or
the standard FHA down payment.) My guess would have been that the far left of
that graph would grow higher as 2008 approaches and then drop after. It
doesn't; the 20% line stays as the overall winner, even though 5 and 10
percent down still collectively beat it.

I see that the post frames it as "so many low-down mortgages" but I look at it
as "a whole lot of people were still putting 20% down." I wonder if some of
this had to do with the appraised value...the value was seen as "high enough"
so a higher initial LTV was acceptable because 5% was still sufficient skin in
the game. (Oh, who am I kidding? Many loans made in the years prior to 2008
had only superficial relationships with reality.)

~~~
hueving
It's interesting how perspectives change. If you talk to older folks they will
point out that even 20% down was 'low'. I think my father had to have
something like half to get a mortgage (late 1960s).

I can't help but wonder if we would have much more affordable housing if it
wasn't so easy to get such massive loans relative to their down-payments.

~~~
verelo
I don't think that's in question; The simple fact is money for housing is
cheap right now, which means it requires more of it to convince owners to part
with their assets as most of them still need to buy elsewhere after they sell
a house.

If money was hard to come by, houses would be cheaper, but then you would also
have more difficulty getting that money to start with. I'm not sure the
affordability would improve, it's hard to say what other impacts a higher
interest rate (or even more so, a higher % down requirement) market would
create.

The only exception to all this are new houses and condo builds, but in those
markets the reason they're more affordable comes down to a combination of
location and risk, risk that the property may not actually be worth its
selling price, so you get it at a 'discount' to the market if it were in a
more established area.

~~~
jdmichal
> ... most of them still need to buy elsewhere after they sell a house.

This is one reason that I never understood people treating their first house
as an investment. Yay, it went up 50%... And so did the house you'll buy after
you sell it. You need to live _somewhere_. Your first house is covering a
short position, not an investment.

~~~
bluGill
A house is an investment. It isn't a liquid investment which is something to
consider.

A house as an investment only pays off after a long term: if you live in the
house for 30 years (doesn't have to be the same house, though trading will
change the time), you have your mortgage paid off. Suddenly your monthly rent
goes to near zero (only taxes and maintenance to pay) Better yet, odds are you
are nearing a different phase of life (kids living on their own) and you don't
need as much house so you can downsize and apply the difference to your
retirement plans. (or if you decide the house is where you want to live for
life a reverse mortgage might make sense - though this area is full of scams)

Note that real estate is very much about location location location. There are
places and times where the difference between rent and a house payment is
significant and it isn't always in favor of either one.

Also comparing renting and buying is NEVER an apples to apples comparison:
owning vs renting nearly forces different life styles. Renting typically means
you get a much smaller place for less money which means you have less room to
have fun at home, but more money to enjoy the time on the town. Buying
typically means a larger place to fill with the type of things you like to do
with your small family. This lifestyle factor is very important, and not one
that you can put a monetary value on

~~~
jfoutz
> A house is an investment.

As a rental, sure. As a home? yeah, i'm pretty skeptical of that idea. There's
no rate of return.

Some people buy a big house to raise a family, and then downsize when the kids
move out. I can kinda sorta see that as an investment, because you've got a
planned future exit, and the value you extract from the extra space is more
than the 1-2% rate of return.

Your cheap place to live is just a cheap place to live. Sure, in the long run,
it's a good deal, but there's no rate of return. Is McDonalds for lunch is an
investment, because it's cheaper that a fancier place?

~~~
dpark
Owning a home is functionally equivalent to renting from yourself. So if a
rental property is an investment, then so is owning your own home.

I also don't understand how you can claim there's no rate of return. Home
values have historically trended upward reliably. Does the stock market also
have no rate of return?

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millstone
How has the ARM vs fixed mix changed?

We started with a 30 year fixed, but refi'd to an ARM after we got over the
conventional wisdom and noticed how much lower the rates were. We paid it off
before the rate reset and ended up saving thousands.

~~~
dpark
It really depends on your financial situation. If you've got the resources to
pay off an ARM before the reset, then absolutely you should do that. Why not?

If you can make the payments on the 30 year easily, then an ARM could be a
good bet to save some money, but there's some moderate risk. If you're a bit
stretched making a 30 year, then an ARM is probably too risky because a rate
increase could push you into default. If you are able to make the payments on
the ARM but not the 30 year fixed, then you probably shouldn't buy at all (at
least not that property).

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Shivetya
Well I have two effects on their story first hand. The multiple loans to buy a
home or such was what the buyer of my previous home did to get in the door.
80/10/10 however it was not because the values exceeded maximum loan values
but they could not make the down payment but wanted in the area.

The second is the combining of credit scores for couples, good friends are
currently renting as his wife's score is the pits. This is even after spending
two years so far paying down here debts which were not education related. On
his own he can land any house they want, together they have to accept loan
rates that make it not worth the costs.

I figure the twenty percent rule saw a resurgence because that number was so
ingrained into the minds of buyers and sellers.

~~~
jdmichal
I got a mortgage with just myself as the signer. And this was with a major
bank; nothing shady or weird. Since my wife is on the title, all she had to
sign was a single page indicating that she was allowing her half of the
property interest into the mortgage. But my income and credit were enough to
completely support the mortgage we got, so that's what we went with.

~~~
cmdrfred
My fiance got our house for us. It's in her name until we refinance in a few
years and my credit is better.

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loeg
Figure 4 and 5 have the same credit groups, but opposite colors. That seems
unnecessarily confusing.

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post_break
Watching the loan value increase makes me realize I won't be able to afford
even a dumpster with shutters. I hear about all these people buying houses
without much down payment and it makes me feel uneasy.

~~~
rconti
I felt that way in 2006. "I'll never be able to save up a down payment because
the estimated down payment is going up faster than my ability to save!"

In retrospect, that was a sign.

(of course, I didn't learn my lesson, and bought a house in the Valley 2 years
ago)

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cloudjacker
So many good nuggets in this analysis!

"If two people wanted to buy a home together, only the lower of their two
credit scores would be factored into important calculations like the
mortgage’s interest rate."

"Mean down payment on new mortgages by credit score tier"

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rconti
One thing they didn't mention is that jumbo loan rates have tumbled, and are,
in some cases, cheaper than conforming loans. I don't know how or why that is,
but it sure makes paying PMI less attractive!

~~~
desdiv
>jumbo loan rates have tumbled, and are, in some cases, cheaper than
conforming loans

Here's a WSJ article¹ explaining the reason behind this weird inversion, for
anyone like me who was wondering: "how is that economically possible?"

¹
[http://www.wsj.com/articles/SB100014241278873238930045790552...](http://www.wsj.com/articles/SB10001424127887323893004579055283906962194)

Here's the pertinent section in case anyone is hit with the paywall:

 _Conforming loans have become more expensive because federal officials, in a
bid to reduce the outsize footprint of Fannie and Freddie, have raised the
fees those companies charge to lenders, which translates into higher mortgage
rates._

 _Meanwhile, interest-rate volatility has driven up yields on mortgage bonds
issued by Fannie and Freddie as investors brace for a slowdown in the Federal
Reserve 's bond-buying program, which has included those mortgage bonds. That
has boosted rates on conforming loans._

 _Jumbo mortgages, meanwhile, are increasingly kept on banks ' balance sheets,
which means prices aren't usually set by bond markets. "Banks have more
deposits than loans today, so the desire to put that money to work, as well as
the fact that it's at a very low cost, allows us to make [jumbo] loans at a
very good interest rate," said Mr. Blackwell._

