FHA Loans and PMI

[Loran Marmes (JR)]

i just a bought a house in wisconsin, im 26 years old and work very hard. i have been on my own since i was 18 and with that it made it very hard for me to save to to some low paying jobs. if it wasnt for getting an usda loan id still be in my apartment. i think a big problem is majority of kids my age still live at parents i believe the stats i read once was 2/3 of young adults live with their parent till 28 and come with a college degree for a field they cant get a job in and have no money of their own.

[Loran Marmes (JR)]

i do not think you can judge "how responsilble" a person is by how big of down payment they put down.

[Marvin S]

i do not think you can judge "how responsilble" a person is by how big of down payment they put down.

But there is the possibility that you could judge how irresponsible they were by their inability to put anything down .

[achiro]

They were a BIG part of the issue. Having 20% of a large purchase price sort of pre-qualifies one as being a more responsible fiscally sound person. Additionally it requires them to have a lot of skin in the game; which will make them more likely to not overextend themselves or walk away with no loss

I get what you are saying but I'm not using the down as a screening tool, what I'm saying is that the monthly payment going up is what killed most people. The problem is that people are pretty much stupid and the ones that should have known (the ones giving the loans) didnt tell the stupid people everything they should have. Don't get me wrong, I don't hold the homeowners blameless but when people are getting the loans without any proof of income the banks have to take the brunt of the blame. I honestly think that people thought that the banks wouldn't have given them the loan if they couldn't afford it. Anyway,I think we agree on this stuff enough not to argue about it. We're just not talking about the same things.

[achiro]

I guess the real issue for me is the gubment telling a bank what they can and can't do. Housing loans are kind of weird in that someone paying $950 a month for rent for the last ten years wants could buy a nice place and lower their payment. Say they wanted a $100,000 house which would make their monthly payment go down but because they can't come up with $10,000+ for the down they couldn't buy. Many bankers might look at that and say, this person has a great work history, has paid $950 per month for housing for the last ten years, and be willing to give that loan. Person 2 may have been living with someone else, barely be able to make the monthly but inherit enough from a dead aunt to pay the down. They fit the guidelines but could be a really bad investment.

[kjrice]

I just think it is not good to PMI for life of loan if they can't put down more than 10%. That adds to the cost and not towards equity or tax credit. At least my VA is worth something again.

[Raymond Little]

Guess I am a succa for putting 40% down instead of buying a new Jag?

[LabNut]

I'd be happy if we went back to 20% down and got the gov't out of it all.

Agreed!!!!

[Gerry Clinchy]

There is truth in every statement that has been made. Both down payment and credit record (the fellow who rented for 10 yrs) are important to judge the quality of the loan. Common sense, and the way banks used to operate.

I honestly think that people thought that the banks wouldn't have given them the loan if they couldn't afford it.

That is also correct. First-time buyers need the guidance of the mortgage officer and real estate agent. The sad part is that when the housing market booms, both areas end up with a lot of people joining those ranks who think it's a way to make some quick money. They are not experienced enough to be interested in building a long-term client base. And this was very much the case during this last bubble. Not to mention there were also a lot of downright crooks involved ... where mortgage applications were actually falsified.

[Gerry Clinchy]

Absolutely agree that PMI should NOT stay with the loan forever. It is another case of the responsible people paying for those who are irresponsible.

However, for homes purchased during a housing bubble, a re-appraisal should be necessary. If the home is worth less than the outstanding loan, the PMI should remain until the principal is 80% of the current market value. That would be fair to both borrower and lender.

The whole point of PMI is to assure that the bank will get back its money if the homeowner stops making payments. In a "normal" market purchase, 80% would be reasonable. In the abnormal bubble situation, many homes are now "under water". Thus, if you purchased a $300K home and now your mortgage is $240K, but the market value is only $220K, PMI should remain until the outstanding balance is in line with the home's actual market value.