Help Stop the 20% Minimum Downpayment Rule

Published: July 22, 2011
By: Matt Dornic
4Comments

If regulators get their way, many qualified home buyers may be shut out of the market very soon. Home owners and sellers will see their property values take a hit, too: Fewer buyers mean lower home values.

HouseLogic took to the streets to ask people what they think about the proposed 20% down rule. If you agree that the proposal just doesn't make sense, take action at NAR's Home Owner Action Center.

If regulators get their way, many qualified home buyers may be shut out of the market very soon. Home owners and sellers will see their property values take a hit, too: Fewer buyers mean lower home values.

Federal regulators have proposed a rule that would require most borrowers to come up with a 20% downpayment on a home purchase. Buyers with less than 20% to put down would have to choose between higher fees and rates — up to 3 percentage points more — compared with folks who have the 20% or a 16-year delay while they save up the necessary downpayment.

That’s how long it would take the typical American family to save enough money for a 20% downpayment and closing costs, according to estimates of 2010 median income and home prices from the NATIONAL ASSOCIATION OF REALTORS® and the 2010 national savings rate.

By the way, those 3 extra percentage points would amount to almost $500 a month for a $250,000 home.

Why do the feds want to mandate 20% down?

Regulators are trying to fix the root causes of the housing crisis, which we fully support. But the proposed Qualified Residential Mortgage (QRM) rule is the wrong solution. Strong evidence shows that responsible lending standards and ensuring a borrower’s ability to repay, not high downpayments, have the greatest impact on reducing lender risk.

Mortgage rate and downpayment should be based on someone’s overall creditworthiness: credit history, income, employment history, and existing debt. I, and many people I know, are only home owners today because we worked hard, paid our bills, built our credit quality — and got a 5% mortgage.

Hard-working, creditworthy American’s shouldn’t be shut out of the housing market or have their dream of home ownership deferred while they save for a needlessly high downpayment.

If you believe, as we do, that 20% is the wrong solution for fixing housing issues, join HouseLogic and NAR in telling the regulators no! Go to NAR’s Home Owner Action Center now and tell regulators to stop the 20% downpayment requirement.

What do you think about requiring 20% downpayments? How would that affect your ability to buy a home?

Matt Dornic

Matthew Dornic is a writer, reporter and senior media relations specialist from Washington D.C. Dornic works at the intersection of policy and press as a director in Quinn Gillespie & Associates’ (QGA) strategic communications practice. In addition to his role at QGA, Matthew is a contributing editor for mediabistro’s FishbowlDC blog and a real estate, nightlife, and arts columnist for DC magazine. At only 30 years old, Dornic is a three-time home owner who currently lives in a historic two-bedroom home in the heart of Georgetown with his three rescue dogs—Chloe, Corbin and Cooper. For more information or to contact this contributor, click here.

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Comments

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You’re right. The housing finance market needs reform. Conversely, we need to be careful not to over-correct and overreach, such as by mandating 20% down. Rather, ensuring a borrower’s ability – and willingness – to repay is based on sound underwriting combined with credit and employment history, among other factors. It’s important not to further damage the housing market in our attempts to fix it because this would harm all home owners and the broader economy.
Posted by HouseLogic on August 02, 2011

What happened to the good ole days of paying strawberry pickers to take out a $700,000 mortgage? The wall street scum would sell the worthless mortgage packaged in a CDO to innocent investors? No. 20% is good. And if it takes 16 years to save 20% for a home you should not buy it. Or get rid of your cell phone, cable, gold chains and really save. Like Dave Ramsey says. Rice and beans. Beans and rice.
Posted by Joseph on August 01, 2011

Abanaba, thanks for sharing your story. I am three-time homeowner and though I put 20% down on my first two properties, I put only 10% down on the house I live in now. Because I had good credit, a strong employment history, some assets and an income that could support my mortgage, I qualified for a great interest rate with a lower downpayment. Like you, I think it's silly to define someone's creditworthiness on downpayment alone.
Posted by Matthew on July 25, 2011

I was only able to get into my first home -- 15 years ago -- by scrimping and saving 5% down. Thank heavens for ramen noodles an baloney. Without a loan at 5% down, I'd be getting my first home right around now. Sure people should have meaningful skin in the game -- that 5% down was A LOT of money to me. But credit history is important, too. Down payment shouldn't be the only consideration. Willingness - and ability -- to repay the loan are pretty important, too.
Posted by Anne on July 25, 2011