Should 20 percent down payment become the norm again?

There was a time when putting 20 percent down on a house was the accepted norm for most buyers, AJC reporter Christopher Quinn writes.

A proposal to move back toward that standard in the wake of the housing meltdown, however, has produced an odd-bedfellow coalition of Democrats and Republicans, consumer advocates and bankers who fear that would leave homebuyers unable to afford loans and sellers unable to find buyers, Quinn reports.

What do you think of the proposal?

It would split home loans into two categories, Quinn writes. One would be loans to buyers who put 20 percent down, and lenders would face few regulatory hurdles bundling those loans to sell as investment securities. It was the volume of subprime loans in such securities that helped precipitate the financial crisis.

The other loan category would allow smaller down payments, but would require lenders to maintain at least 5 percent of the total value of their loans so they shoulder part of the risk, Quinn reports. The intent is to ensure lenders thoroughly vet borrowers. Some believe this would cause higher interest rates and shut lower-income buyers out of the market.

Do you support or oppose this proposal? Why?

- Henry Unger, The Biz Beat

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93 comments Add your comment

Chris

July 28th, 2011
12:04 pm

I support a free market. Let the lender and buyer decide what is appropriate for a down payment. It’s regulations that got us in this mess. Regulations won’t get us out.

Logic

July 28th, 2011
12:05 pm

Yes, this was the requirement when I purchased my first house in 1993. You get a better interest rate if you put 20% down.

Also, the average 30 year fixed mortgage rate is approximately 7% so our current rates are well below the average.

Logic

July 28th, 2011
12:06 pm

You have an outlet for Americans who will need to save for a down payment, it is called renting. I rented for 6 years till I purchased my first house.

MrLiberty

July 28th, 2011
12:07 pm

This shouldn’t be a proposal, a law, or anything else top-down. The Federal Reserve prints money out of thin air. It then sets the interest rate based on political whims. It has lowered the interest rate to basically zero which has been a major contributing factor to rising home prices and the bubble – well to be fair, it is the ONLY factor responsible for the bubble in housing. All of the creative, illegal, etc. schemes that we have seen come from the greedy were ONLY possible because of Federal Reserve policies and super cheap available money.

We need a free market in banking – PERIOD. No more of this fractional reserve criminal fraud behavior, no more of this lender of first resort crap. The money available for lending should be tied to the amount of money held in savings at the bank, and the bank should be allowed to require whatever down payment it feels is appropriate to secure the loan – PERIOD.

Central planning always fails. Bank central planning is failing before our eyes and taking the country down with it. TIME TO STOP THE GOVERNMENT MANIPULATION OF THE FREE MARKET. TIME TO END THE FDIC. TIME TO END THE GOVERNMENT BACKING OF LOANS.

ATF

July 28th, 2011
12:11 pm

The real problem with the proposal is not the 20% down, it is the 5% retention by the banks or lending institution. The problem was always that the lender had no skin in the game, had insufficient economic consequence if the loan went sour. Leave the bank 20% – or 40% – at risk, and the bank will be much more careful about who it lends to and how much of a down payment it requires. The exception would be if the bank agrees to entirely forego government guarantees on loans or selling off loans to consolidators who then turn them into “investments” for those who will suffer the consequences.

BravesfaninNashville

July 28th, 2011
12:16 pm

If we make buyers have 20% down it will take a lot longer for the housing market to recover because it will take years for enough people to save $40,000 for a $200,000 home purchase. What’s most important is to make sure buyers are buying homes that are within their means and not above their means. They also need to have skin in the game by requiring some downpayment even if its only 5% because then they will have something to lose if they get in over their heads. I think there needs to be a return to moderation. It was too easy for people to just sign their name and move into a home they truly couldn’t afford long term either because they had an ARM that would later adjust to high for the buyer to keep up or because the buyer really couldn’t afford the house payment once they factored in the other costs of ownership.. Taxes, maintenance and insurance. We need to make homes within reach of average Americans but we need to make sure if they can only afford a Toyota Corolla we don’t lend them the money for a Lexus..

Hootinanny Yum Yum

July 28th, 2011
12:28 pm

Agree. Then people will think twice about locking themselves in a BS loan they, and the bank, know they can’t afford.

Put a little stability back into the market.

Bill Campbell

July 28th, 2011
12:30 pm

Yes!!!!!!!!!!

Lashanawonnika

July 28th, 2011
12:38 pm

“…who fear that would leave homebuyers unable to afford loans…”

That’s how we got into this mess, giving loans to people who couldn’t afford them. So now we want to repeat the mistake?

20% minimum down payment in every case. As someone already noted, you rent an apartment until you save enough money.

LJ

July 28th, 2011
12:39 pm

Bingo – EVERYONE needs skin in the game. We have to stop insuring junk loans if we ever want to see a stable and sane housing market. Owning a home is not a right- it is an investment decide to make if you are financially capable…

If we stop insuring bad loans you’ll see lenders stop giving them out…

dur...

July 28th, 2011
12:42 pm

No. But…lenders can require whatever they choose. How about requiring a lower debt-to-income ratio for less money down? I just purchased a home and was AMAZED when i found how much money a person can owe compared to what they bring in every month and still get a mortgage. There is a lot of greed out there, not just on the lending side, but on the side of buyers. Negligence on the purchaser’s behalf is not a very good argument.

H

July 28th, 2011
12:43 pm

Absolutely!! I hear people say this isn’t going to help the housing market recover…recover from what? Overblown prices, overbuilding, people in homes that they can’t afford, etc, etc?? This is called a correction back to the mean and its well deserved. You can’t expect the value of your home to go up 20% a year, you can’t have people that make $50,000/ year in homes that are valued at over $500,000. How were they affording that in the first place?? A 200 year loan at .5% interest?

Its back to reality and back to basics. If you don’t have enough to put down, you shouldn’t be buying a home. I also think they should start doing more in-depth background checks on applicants. When someone has some marks on their credit, ie bankruptcy..depending on the situation they shouldn’t be getting approved. People need to take responsibilty for their actions and educate themselves. I’m tired about people saying they didn’t know the terms of a loan..if you don’t know then why are you signing it?? Spoonfeeding ends at a young age.

ATLAgent

July 28th, 2011
12:47 pm

@Logic, I bought my first home in 1996. We only had to put 3% down. What year did it change from 20%? I bought my second home 6 years ago and my rate is 5.25 fixed. As a real estate agent, I can tell you that 7% is not the norm. Rates are pretty low right now.

There are some misconceptions about the market. First, rates are still extremely low. However, forcing a person to save 20% isn’t going to help the market. It’ll make things worse. For the working poor and middle class, it will be nearly impossible to save this kind of money.

For the comment regarding ARMs. These mortgages don’t always increase. It depends on the type of ARM you agree to. This is a false assumption. They are not for everyone, but for some people they are a great way to save on their mortgage for a couple of years.

Currently buyers must put 3.5% to 5% down. That’s not a small amount of money and allows them to have skin in the game. If we want the market to recover, we need to allow businesses to set their loan requirements, not the government.

Homer

July 28th, 2011
12:47 pm

Lenders must shoulder a portion of the risk; however, in today’s market you will never get first time home buyers in the market if you require 20% down. If builders could make a profit by selling a home for $100K then maybe we could talk seriously about 20% down. If today’s starter home was built like my parents’ starter home in the 1950’s then perhaps you could create a market for lower income, first time home buyers. Unfortunately no one wants to buy a brand new, 3 bedroom, 1 bath, 900 sq ft home with no central air conditioning, laminate counters and vinyl flooring.

ATLAgent

July 28th, 2011
12:48 pm

One more thing about ARMs that I didn’t make clear, the rate will adjust, but it can adjust down, it doesn’t necessarily adjust up each time. I should’ve made that point more clear.

David

July 28th, 2011
12:49 pm

BravesFan,
if people can’t afford the down paymenton a $200.000 houes, they probably won’t be able to afford the future house payments and will end up defaulting on the loan. The other thing is there are a lot of so-called $200,000 houses that were never worth the money but easy financing made it easier to jack up the price. Builders and finaciers just may be forced to provide housing at reasonable prices and make reasonable profit margins instead of the get rich quick, hit the lottery, wild wild west attitude that ended with the downturn three years ago.

Robert Barron

July 28th, 2011
12:50 pm

20% down would be going from one extreme to the other.

Robert Barron

July 28th, 2011
12:56 pm

We started breaking the economic rules with Reagan’s one trillion per term deficit. Bush 41 and Clinton both continued this rate. Then like we did with down payments, W’s eight years of 2 trillion deficit per term seemed to say, “well nothing bad happened at one trillion deficit so why worry about them at all?”.
That seems exactly what happens with credit.
Tight then looser then too loose.
Bend the economic rules until they are broken.
That’s how u get 14.7 trillion.
Obama may not be the solution but he got W’s lousy hand handed to him as opposed to the good hand Ike got from Truman.

Robert Barron

July 28th, 2011
12:58 pm

If Nixon had run 2 trillion dollar deficits, he might have been a popular guy too. (235 billion dollars with a war during 8 years including Ford’s two).
How can u be popular with that pittance of vote buying?

Pamela

July 28th, 2011
12:59 pm

I totally disagree with this. This will cause the majority of people that want a piece of the “American Dream” to lose hope. This is not a good idea at all.

Michael

July 28th, 2011
1:02 pm

The banks will just lend you the 20% in a separate loan. The same way they financed you out of Property Mortgage Insurance requirements to have a 20% equity cushion before you could drop it.

Point/Counterpoint

July 28th, 2011
1:07 pm

I think Henry’s lead in line says it all – “There was a time”. I agree that homebuyers should absolutely have skin in the game. However, the days when 20% downpayments were the norm, were also the days when a person could go to work for a company and plan on retiring from it as well. Those were also the days when the employees and the managers had shared risk and reward in the company that they worked for and reaped the benefits of their productivity and loyalty. Unfortunately, those days are gone. I’m still suprised that people still utilize the 30 year mortgage. I mean really, how many people do you know that have been with the same company for even 20 years? I’d say that probably 5% to 10% would be a reasonable expectation. Enough to have a vested interest, but not so much that you could lose your downpayment simply because you HAD to move before re-couping the cost.

B.

July 28th, 2011
1:10 pm

It should be up to the lender, but a 20% down payment requirement seems like a no-brainer to me. It shows discipline on behalf of the buyer and as a reward, saves a lot of money for them in points and fees. I put 20% down on my Atlanta home in 2008 and have lost about 7% in home value due to the market. The good news is, if I had to sell my house, I wouldn’t be forced to come up with more cash for someone to take it off my hands. There is a peace of mind in knowing that I am not chained to my property, even if I’ve lost some equity. My guess is that a majority of those in foreclosure did not put 20% down.

The other real estate rule everyone ignored is LOCATION. Those who bought new, big and cheap in the ‘burbs are really hurting right now. Pre-owned, smaller homes in established neighborhoods IN TOWN have held their value much better. I’ll take avoiding commuter traffic over having a huge walk-in closet/bonus room/3 car garage any day of the week!

Carlos

July 28th, 2011
1:10 pm

I disagree. First of all he cost of land and a house costs way less than it did 30 years ago. My parents sit on an acre of land with a 3 bedroom 2 bath house and only paid 1000 for the lot. Now a days you can’t buy a refrigerator for a 1000 dollars. Having people come up with 20% down isn’t the solution. People before they are able to obtain a home should be able to handle their current responsibilities. I don’t co-sign with this notion that everyone should own a home. The reality is not everyone should own a home. I agree that their were people who used tricks and gimmicks to lure people into signing bad loans. However when you are making that type of purchase you should know before you sit down to sign anything whether or not you can afford it and be willing to take something cheaper so you will still be able to take care of your responsibilities. We didn’t put down 20% and me and my wife have bought two houses. Like many we have made mistakes (I know I have) with money but I can look back and say that at the time I didn’t have 20% to put down on a house. What we have to come to grips with in this country is getting back to individual accountability. Hopefully as a result of what has happened this will teach many, including myself a valuable lesson.

Ben

July 28th, 2011
1:11 pm

end govt support of home buying & many things it has its hand in now; it distorts mkts and misallocates resources too much.

Fannie

July 28th, 2011
1:12 pm

Fact: Before Barney Frank, Chris Dodd, Jimmy Carter (Community Reinvestment Act ) and a load of legislations that was (primarily) written by Democrats and passed by both Democrats and Republicans, 20% down worked fine. Folks should have to save their down payment, and pick a house within their means. This is not going to hurt anyone’s chance of getting a house. This is going to cause people to get less house than they had dreamed about. If one has a $20,000 down payment, he/she wont be able to get a $200k-$400k house. They will have to settle for a $100k house. But the monthly savings in payment between the two homes means that they will be able to save an additional $20k over the next three years. So their $200k dream home gets put off by an additional 3 years. Is that such a huge price to pay for a solid economy and housing market?

Because Fannie and Freddie guarantee the most mortgages in this country, the process is subject to political meddling. Google “barney frank home mortgages jimmy carter ” and you can get an itemized list of this meddling. In short, though, this was yet another liberal disconnect between the “ideal world” and the “real world”.

In the “ideal world”, everyone wants a home/house and should be able to get one. This would foster community support and it would cause low income participants to invest time/effort/interest in their communities and schools. The though was that the poor could pull themselves out of being poor by investing in their home and their community. So while Democrats had the best intentions, their 40 year assault on lending standards in order to get lower income participants into the housing market backfired. Republicans were complicit because, well, their constituents were making boatloads of money.

In the “real world”, though, the poor who “bought” houses with no money down were not invested. They had no money at risk. Heck, they might even get to stay a year in the house for free while being foreclosed. These folks never went into home ownership with the idea that they would stay in the house for a long time and become part of the community. They went in thinking that they could buy the house for nothing and flip it when it went up in value.

The banks, after selling the loans, had no money at risk.

The only risk that was being taken was by those buying mortgaged-backed investments. Upon seeing the risk that was being hidden in the market, Derivatives arose that bet against those securities. Soon, sufficient financial leverage was created against those securities by those betting against them to cause a crack. The bubble burst.

What started it all, though, was political meddling with quasi-government entities (FNMA) to relax proven lending standards. Tightening those standards means that people will get less house for their down payment. But it also means that their payment/insurance/taxes will be lower. If they COULD have handled the monthly payment of a house that cost twice as much, they should be able to save up the additional down payment to move up to that new home in just a few extra years.

Chuck Allison

July 28th, 2011
1:20 pm

Yes, down payment should be 20% and interest rates need to get back to 7% in order for things to be stable and healthy. The only exception to the 20% down should be for VA loans.

LB

July 28th, 2011
1:22 pm

I put 45% down on my home in 2007 when I could have put 5%. We did what was ethical and right. Now my $2.4m home is worth $1.2m. We got screwed by the system because of what others did. If I had to do it again I would have put 5% and either forced the mortgage company to adjust or “key mailed” my home back to them. I love the idea of 20% down- gets rid of the people that should be renting.

B.

July 28th, 2011
1:28 pm

LB, Just curious, where did you buy your home? Was $2.4 m the sale price or the appraisal?

Robert Barron

July 28th, 2011
1:29 pm

At 7% interest rates, how much more will our government’s interest payments be?
I am asking but don’t really want to know.
With each bump up in rates, billions more will be needed for interest.
I would prefer to wait.
However I agree the way both parties have run up our debt (while blaming the other) has greatly harmed or cheated our retired savers who don’t want to venture into the stock market.

John E.

July 28th, 2011
1:29 pm

I never bought real estate without putting at least 20% down. In 1979, I bought my first property (a 1050 sf condo) in Southern California for $74,500.00. I put $15,000 down and still had a negative amortization ARM with the low interest rate at 10.5%. I owed more on the mortgage after 5 years than I did when I bought the damn thing AND my payments went up. Remember those days? We may see them again soon!

I now have three residential rentals and a share of a commercial office building in addition to my home. I always put at least 20% down and I always commit to own the property for at least 7 years before even considering reselling it or refinancing. Currently, I am responsible for and paying 5 mortgages.

Some people by virtue of their lifestyle or their job responsibilties are just better off as tenants and do not need to own a home. If you cannot commit to staying in the home or owning the property for at least 5 to 7 years, rent it, don’t buy it. Needless to say, if you cannot put 20% down, you are not committed enough to own real estate.

Unfortunately, in today’s instant gratification society, no one wants to put the money down or to commit to ownership. Flipping houses, liar loans, mortgage fraud and the loose lending policies that enabled such practices got us into this mess. 20% down would cure that problem.

Having said that, I do not really begrudge the old, one time FHA 5% loan (with mortgage insurance) to get someone in a starter home or cond or the VA loan program. But only one FHA or VA loan per borrower per lifetime, after that, it should be 20% down every time.

Logic 05

July 28th, 2011
1:37 pm

10 – 20% down payment should be required.

Yes, it will require some to wait before purchasing…but, it will reduce the changes for another melt down. However, get ready for the NAACP to cry foul if implemented.

budd

July 28th, 2011
1:38 pm

It is not regulations that got us into this mess it is the total lack of control of the process. People who had no business getting a loan for a home were given loans with stupid terms that an idiot should have recognized they could not afford. But they got the loan, interest rates went up (They always do) and what a surprise “we can’t make the mortgage payment”. Then others lost their jobs in the recession (|There is always going to be one) and they too could not make the payment. Then we have the “Must have everything” group who pulled every drop of equity out of their home so they could buy this year’s Beammer. And guess what they couldn’t make the paymnents either. At least with the 20 % requirement you get home buyers who have some semblance of a clue what they are doing by showing they can save for the future. The rest should just rent and complain to the landlord.

Jessie Jackson

July 28th, 2011
1:38 pm

Requiring 20% down payment is racist!

Obama

July 28th, 2011
1:40 pm

A 20% down payment requirement would cause most of my supporters to be homeless. Clearly this proposal is racist!

Understanding Atlanta

July 28th, 2011
1:41 pm

This is an interesting topic. Home prices have increased considerably compared to wages. While everyone needs to have “skin in the game” 20% will lead to fewer people ever owning homes and with the current housing market, rental rates are set to outpace mortgage payments so saving that money is unlikely. 5 – 10% depending on the lender and individual gives that person enough interest to maintain and keep the property. Honestly, even in Atlanta, there’s very few places you’d want to live (not the suburbs that require hour + commutes into the city) that would afford you the ability to buy a house at 100k with a 20k down payment. And with rental rates on a 1br/apt hovering 800 – 1000/month it’s a setup for a longer recovery.

You should put some money down. Yes. But let’s look at the number of defaults between 5% down and 20% down in the current market, and I bet we won’t see a difference.

let'sberealistic

July 28th, 2011
1:42 pm

LB you are a SNOB!

So “low income” people should be forced to rent for their entire life because they can’t afford 20% down? Is that the message I’m getting?

How many of you can support your family~rent, food, utilities, ins, medical, clothes etc~on your salary & still save for retirement & 20% for a home purchase? Be honest. Not many. It would take me at least 10 years, probably 20, to save 20K & I’ll be almost 50 or as old as 60 by the time I could buy another home! God forbid while you are saving something doesn’t come along & wipe you out. Don’t be naive & tell yourself that you are always prepared because how many of us were prepared for the economy crashing the way it did. There is NO WAY to prepare for everything.

budd

July 28th, 2011
1:47 pm

How do you think I got it? Catching a elf for a pot of gold?

What ever!!!!!!!!!!!!!!!

July 28th, 2011
1:50 pm

No 20% should not be the option. Its not the problem, the problem is the banking industry lending money to people who cant pay. When you only have a income of 2K per month, you cant afford a house payment of 1500 per month.

Another problem is that the builders stopped building homes that middle income people can afford. Back when i bought my home, I thought 75 K was a terrible amount. Now 15 years later, my home would purchase new for 350,000. Im sorry but there is no way that home should have jumped up that much.

If builders will build what people can afford and lenders actually have qualifications that prove the buyer can handle the payments, all the other stuff would not exist. 20% will just throw many home buyers right out of the market and finally do in completely the home industry.

Jackson Brown

July 28th, 2011
1:54 pm

Absolutely not…if you want to bury this country in a long-term depression like Japan (to which we are well on our way now), then go ahead.

Jackson Brown

July 28th, 2011
1:56 pm

And this is NOT a racial thing for those of you backwoods rednecks on here…no wonder GA is still stuck in the 19th century…

Michael Adamson

July 28th, 2011
2:04 pm

Stupid! Stupid! Stupid! But then it is Washington … This will completely kill what little is left on the housing market.

First the goverment took all of our deductions, then they took all of our savings and 401K’s, then they took what little value we had in our homes …. so now they want to go on and kill the only market segment that has a chance of pulling us out of this mess which is housing and construction.

“We the people” need to wake up and FIRE everyone in this goverment regardless of party lines ….

Just a quick question? Is there anyone out there that felt Stimulated by the Stimulus? Maybe it’s just me but all I felt was screwed!

Last Word

July 28th, 2011
2:08 pm

I do think that lenders should have some “skin in the game” in the form of reserves.
And i think the borrower should too.
If you can’t marshall together 20% down, then pay the premiums on PMI.

Rabun H

July 28th, 2011
2:10 pm

I agree with Point/Counterpoint. Let’s also not forget that most employees in the US are extremely mobile. Relocation by employees or future employees is still vital to retain good employees or obtain better employees. Many of the people that are walking away from their homes are having to because they can’t sell and a job awaits them elsewhere. Alot of these people have families and renting is not an option. Better school districts have a community of homeowners that support them, most people that rent are not seen as stable.

Our family has always put 20% percent or more down on every home, but we are the exception to the rule – and have been for a long time.

In the No

July 28th, 2011
2:11 pm

I am so confused…

If borrower’s don’t have 20% down, they are required to pay for mortgage insurance. Even through the present crisis, no mortgage insurance company has failed to pay a legitimate claim, none of been in a position of not being able to pay claims and all but one has remained in business. That company stopped writing new insurance, but has continued to pay claims. One new company started.

The problems were with non-conventional mortgages, which didn’t carry insurance. That market is gone.

What problem will be solved by requiring 20% down? The subprime market, which had the problems with the high LTV loans is gone. The prime market, which did not have the problem, continue to require insurance, which means lenders and investors aren’t likely to lose money if those loans go bad. Underwriting standards have been tightened. The new mortgage insurance company, which has been writing policies for a couple years, has not had a single default. Obviously, under the new underwriting standards, the high LTV loans are not defaulting.

So what problem would be solved that hasn’t already been solved by requiring 20% down? The immediate impact would be an immediate stop to new buyers in the market. At a minimum, there will be a five year period for most people to save up 20%.

This is the ultimate government intrusion by people that know nothing.

Peter

July 28th, 2011
2:15 pm

Hasn’t everyone lost their 20% in the last 3 years ?

tim

July 28th, 2011
2:15 pm

20% is good. and no PMI required. It made me buy my 1st home in the correct way that I could afford. People who don’t have much to put down seem to not care what something costs as long as they can make the payment, like people who lease cars. They eventually get in way over their head.

In the No

July 28th, 2011
2:17 pm

Last Word – requiring 20% down would not impact the risk to the lender, as the present insurance coverage really means the risk to the lender on a 95% loan is the same as an 80% loan, but the new rules would make the higher LTV loan more expensive to the consumer and the lender. The point is the way the system works now, borrowers have the choice of getting PMI. Under the new rules, the borrower can get PMI, but will have to pay a higher rate because the government says so. Not because there is additional risk on the loan – if that were the case, those loans would already be priced higher – but just because someone in DC wants to impose his/her values.

The impact on the housing market would be immediate and harsh. Those of us who were responsible, got mortgages and homes we could afford and are presently underwater would fall much, much farther down. Not only wouldn’t there be buyers, but many of would just walk from our homes, which would likely be worth less than half of what most of us owe. It would be silly for the government to trigger this, wouldn’t it?

Jackson Brown Eye

July 28th, 2011
2:18 pm

So who were the majority of the people who defaulted on their loans? I would hazard to guess Shamika was more apt to default on her loan than Hans!!

free

July 28th, 2011
2:19 pm

I only paid about 5%, i’ve never been late on a payment, and i’m still in my underwater house honoring my commitment. sooooo, this is bull. people putting 20% down usually did so with equity from a prior home. they’ll be surprised how few folks really have 20% now and it’s not really a predictor of anything. in fact, a relative put 20% down and walked away after her condo depreciated heavily and the neighborhood went in the tank. she took the loss and now rents in a far better neighborhood.