Remember 20% Down Home Mortages? They are Back!

For those of us Baby Boomers who have been buying homes for years, it was a big surprise a few years ago for us to learn that we could buy a home and get a 100% LTV (loan to value) mortgage. Well, not any more.  The banks are finally tightening up and requiring 20% down again.  It’s about time.

Over the years, I have owned many homes (I count 24, including the one my husband and I currently own).  In the late 1990s, I started to see the 100% home equity loans and I wondered, “Why would people do that?”  Even when I could get a bigger loan, I always resisted, for two reasons:

1.  Mortgages with less than 20% owner equity don’t allow the buyer to pay property taxes and homeowner’s insurance themselves, but required them to be escrowed and paid by the lender.  I always want control of this stuff, and I don’t want someone else holding my money and getting interest on it.  I’ll do it myself, thanks.

2.  I didn’t want to be in the position of having to sell a home quickly at a loss, and having no equity left at the end of the deal.  It just seemed to me a huge gamble to bet on the value of a home staying the same or increasing.  Historically over the past 30 years home values have increased, but the past is no guarantee of the future.  Looks like I was right.

As Miranda Marquit says in her banks.com blog, people who don’t have the money for the down payment shouldn’t be buying a home.  The idea of home ownership as a right not a privilege  began as we Baby Boomers were born, in the “boom” years after World War II.  Somewhere, we got the idea that everyone should own a home, and that it was the safest, most rock-solid of investments.  Recent months have proved that wrong.  There is no such thing as a “sure thing” when it comes to investments.

This huge shakeup in the credit markets is finally causing banks to re-think their crazy practices.  I know banks need to lend money to stay in business, but they always seem to go way out on that limb and then they wonder when it breaks.

I will bet you a lot of money that 30 years from now, when we’ve all forgotten this time (or most of us Baby Boomers are in our graves or nursing homes), people will say, “We never imagined that home prices could go down!”

Those who cannot learn from history are doomed to repeat it.  George  Santayana.