A.D. CANTELMO REALTY/TONY CANTELMO
BROKER
TONY CANTELMO

 

Lower Down payments: Boom or Bust!

 

 

 

 “Yeah, we have a slow recovery, but it appears to be going to continue,” Mr. Toll said, adding, “Why do we want to go do what got us into this problem in the first place? … Three percent down doesn’t make any sense.” Mr. Toll concluded that lenders have required a 20% down payment on top-rated mortgages for decades “and we had a hell of a housing program.”

 

These are words from Founder and CEO of one of the largest luxury home builders, Toll Brothers, Robert Toll. What is he talking about? Well he is reacting to the FHFA (Federal Housing Finance Agency) announcement.

 

 ( Federal Housing Finance Agency Director Mel Watt announced a number of policy steps aimed at increasing mortgage credit availability at the Mortgage Bankers Association on Monday. Watt didn’t provide a great deal of specifics, but said that the FHFA will be taking steps to further clarify lender liability in representations & warranties. He also said that he supports the return of the 97% loan-to-value product at the GSEs, Fannie Mae and Freddie Mac)

 

  Is he right; is it a bad Idea to go back to the 3% down that was prevalent at the height of the housing boom? It does seem to be a strange opinion, coming from a builder. Remember though, Toll Brothers is a luxury home builder; his buyers are not in the financial situation that they worry about the down payment.

 

Other builders such as Pulte Group CEO Richard Dugas Jr said: “We are encouraged by proposed changes at FHFA which have the potential to improve mortgage availability, particularly for first-time home buyers.” And Larry Nicholson, CEO of Ryland Group, said: “I don’t think anybody is a proponent for going back to what happened in 2006 or 2007 at all, but a little common sense goes a long way. I do think it helps the entry-level buyer with the 97% (loan-to-value) program. I think that will get some people off the fence.”

 

These different opinions from 3 prominent home builders are interesting to say the least. All of us, especially people in the Real Estate industry want to see the 1st time home buyer get back into the market. But are we doing these 1st time buyers a favor or a disservice by allowing them to get into a home with only three percent down? Many of the buyers that lost their homes after the bust, never had a chance to really pay for the home that they purchased, Most of them, were really only renting those homes until the market collapsed. Part of the problem was the low down payment. The more you have invested, the more careful you are before you make the decision to buy. But the other problem was that the homes that they were buying were just too expensive, if you can afford to pay $2000 per month in rent, and you are comfortable with that, why you would agree to pay $3000 per month for a home purchase.

 

The bottom line is that if you allow people to get into the home with a low down payment, then you also have to make sure they do not purchase more than they can afford. That will be the only way it will work for the long term. Now there were many reasons the housing market collapsed, the low down payments were only part of the problem.

 

The reality is that the down payments will be lowered, and it will open up the market to more 1st time buyers. Only time will tell if the mistakes of the past will pop up again. There will be more booms and busts in the housing market in years to come. Our economy seems to thrive on enjoying the booms and digging out of the busts, but the important part for an individual is to limit your exposure when the market has its down side. Live within your means and don’t buy more house then your pocketbook can afford.

Featured Listings

 

Email Agent

Enter your email address and I'll reply as soon as possible.

Type the characters

 
Realtor Equal Housing Opportunity Multiple Listing Service
 
 

What my clients are saying  

5 reviews 5.0 star rating 1/21/2016 I was tired of using a large management team to manage my investment property. I felt I was always on the back burner. I was recommended to Tony from a business associate, he assured me I would be very pleased. Well that was an understatement, Tony is amazing. He's above all honest and always available for my concerns. I'm not as well versed as other investors with property management and maintenance and tenant relations, Tony has been an excellent partner and has guided me through quite a bit of needed repairs and worked far beyond what was expected to help turn my little investment into quite a prosperous investment, If what your looking for is prompt return calls, honest direction and someone very knowledgeable with general contractors and real estate laws, Tony is your man. Angela

 

~ Angela

5 reviews 5.0 star rating 1/21/2016 I was tired of using a large management team to manage my investment property. I felt I was always on the back burner. I was recommended to Tony from a business associate, he assured me I would be very pleased. Well that was an understatement, Tony is amazing. He's above all honest and always available for my concerns. I'm not as well versed as other investors with property management and maintenance and tenant relations, Tony has been an excellent partner and has guided me through quite a bit of needed repairs and worked far beyond what was expected to help turn my little investment into quite a prosperous investment, If what your looking for is prompt return calls, honest direction and someone very knowledgeable with general contractors and real estate laws, Tony is your man. Angela

 

~ Angela

"10 out of 10 I am so Happy Since I left my old company and I joined AD Cantelmo Property Co I am stress free I live in a different state and this company watches my house and always Mr Tony Cantelmo is on top of things I really want to thank you for what you do for me and I would really Recomend this Company to any and every one Thank You again. Shawn" ------------------- "I need to trust the people I work with and I trust Tony. He stays on tops of things, communicates well, and gets things done. He not only gets things done but he gets things done the right way. Jim"

 

~ Shawn

More Reviews

Want to Know How Much Your Home is Worth?

Get Your FREE Home Market Analysis Report Right Now!

YES, SHOW ME NOW