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I have BLOWN a gasket in Real Estate !!! Using FHA loans & being upside down ?

"HOUSTON, we have a major problem with all of these homes upside down" "People need to put more money down!!!"

homes that are up side down - mortgages that are upside down

Just the other day, a borrower asked this question on Trulia.

What is the difference/advantages between other FHA loan lenders and the lenders approved for the NJ First-Time Homebuyer Program ?

Response by a realtor : "it is probably not wise to buy a house with 3% down anyway. In my opinion, putting 3.5% down is akin to no down payment at all, and that is what got the housing market into trouble in the first place, among other things. Putting 3% down in a declining market will leave you upside down in a few months."

STOP - It's an opinion, but I think it's a horrible opinion.

save your home with a FHA loan 10% down payment

So Mr. Realtor, you are saying if I put 10% down, then it would have saved many homes from being upside down and possibly many foreclosures? Or even 20% down? A home buyer then came in and commented. She said :

"That's ridiculous. It’s quite possible for a buyer to have enough resources to handle any major repairs that may arise but still not have enough for a “serious” (I’m assuming you mean 20%) downpayment.

On a $350,000 home a “serious” downpayment would be $70,000.

Even if the buyer had the worst home inspection in the world and had to replace the roof ($20K), the furnace ($6k) and the water heater ($3K) within the first year. The cost of all of those repairs plus the 3.5% downpayment would be around $41,000 which is almost $30K less than the 20% downpayment."

My opinion on the borrowers statements? There is some truth to this comment. Read further.

I replied to this realtor and to the home buyer's comment. Here is what the realtor then said.

fha loans down payments

My Opinion : I don't have a problem with opinions, but it's the opinions often given in the real estate sector that are just thrown out there because you want to be made as the savior of the end to all real estate crap that has taken place in the last 2 to 3 years.

My Take on this ongoing issue of upside mortgages and adequate down payments when it comes to FHA loans. (please read my two articles below, because they will give you details and good opinions expressed by some very good real estate professionals)

The real estate mess in the last 2 years was not due to those that used FHA loans and put 3.5% down or even 2.25% down as a down payment.

Bad economy overall - sorry to sound negative, but many people have lost jobs, it's a fact, and this has caused many of the foreclosures.

What about those bad loans, such as the stated loans aka liar loans, when not verifying income? Did many of these foreclose?

Equity position - The argument by this one real estate agent is that if you use a FHA mortgage and put the minimum down, you will be underwater very soon. Okay, that could be true depending on your appraised value, but let me ask you this. Why are you buying the home in the first place. And many people will live in their home for at least 6 years. Food for thought... If you put 10% down and had to sell in 2 years, you will be close to breaking even anyhow, because you normally will be paying a real estate commission of 6%. Again, focus on why you are buying a home.

Down payment monies - You can get monies in the form of gifts from family members and or grants from the state or counties. It's out there.

Summary : Overall, if you are in the market for a home, you feel secure about a specific mortgage payment, and have spoken to a qualified professional loan officer that has gone over your assets and has explained the process to you, then you should be fine. I have a set of questions to ask a borrower, including their goals. One of my main concerns outside of your mortgage payment is to make sure that you have some reserves left over. I would rather have you put less down and keep more money in your pocket, even if you have 10% down. Sorry, but this makes more sense, even when using FHA loans with 3.5% down. Please just don't be scared of comments such as the ones above. Please read :

Jeff Belonger's top 10 questions.

Cash is KING - A larger down payment might not always be your best solution.

UPDATE : The beginning, after Houston, we have a problem... I am against large down payments for many reasons. This should not be the reason not to buy a home. 3.5% down can work and has in the past.

There is still an underlying value in home ownership that does not involve dollars and cents.

- This is an excellent article by Richard Weisser. It's more than just buying a home. Thanks Richard..

The Government at one time last year was pushing that all FHA loans have a mandatory 5% down. I wrote a series of articles on this :

FHA loans to 5% down? No seller concessions allowed? Rumors? - The government at its BEST again !!!! 10-02-09

I WANT your SKIN in this game !!! Give it up !!! 10-07-09

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For more information on FHA loans, please go to this link. The FHA Expert

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!

HUD

For information about FHA myths & FHA rumors, please read : FHA Myths & Rumors

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FOLLOW ME ON FACEBOOK

- FHA Loans - USDA Loans - VA Loans -

- Energy Efficient Mortgages -

- Conventional Loans - 203 k loans -

- FHA Home Loans - Mortgages -

Experience & Knowledge at its BEST !!!

Follow me on:

______________________________________________________________________________________________________________

For more information on FHA loans, please go to this link. The FHA Expert

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!

HUD

For information about FHA myths & FHA rumors, please read : FHA Myths & Rumors

Posted by Jeff Belonger-The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans on 06/25/2010 10:35 AM

Comments (38)

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Originally posted at: FHA Mortgage Expert - Tri-State Area - New Jersey/PA/Delaware: I have BLOWN a gasket in Real Estate !!! Using FHA loans & being upside down ?

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38 Comments on I have BLOWN a gasket in Real Estate !!! Using FHA loans & being upside down ?

JUN

2010

Jeff, great comments. What is with the lambasting FHA is taking these days? My goodness, if we had been qualifing people per FHA guides instead of the stated, no doc, no income loans does anyone really believe so many people would have lost their homes? IMHO, FHA should have raised their limits long ago...and, if they lower them back to previous levels consumers are toast here in California. Further, prices are starting to go up in my area...so the consumer will lose opportunity as they are saving for more downpayment, Thanks for the post.

Why not reply to a simple question with a simple answer?

The agent who gave that answer should be selling shoes.

Hi Jeff,

Informative post!...

I am with you!

This is an unprecedented time to buy a home. If 20% down payment was a qualified home buyer's only option, we would be in even more hot water with home values, sooner rather than later.

Your point of why are you buying a home? must come into play as well. Long term goals need to be adhered to buying in this market!

Thanks for the great insight.

Best regards,

As always, great post, Jeff. I don't understand why the issue of jobs, shrinking income (many people have had paycuts and/or loss of hours) and rising living expenses, such as insurance, utilities, gas, etc. are being ignored. You know what they say about Trulia. Unfortunately many people go to Trulia for information. That Realtor's opinion is just that and probably has never closed a transaction with the buyer using an FHA loan. BTW, love your top 10 questions to buyers -- just great.

DEBORAH.... . I agree about the fact that if we had been qualifying people with income and not the liar loans or those pay option arms that so many borrowers got fooled on and misled. I had a borrower once that was self-employed and the current loan officer was taking him as a stated income. He was referred to me by a friend and I asked for tax returns. I was able to squeeze out the income to make it work full doc. I dropped his rate by like 1 1/4% at the time and saved him $3,600 in points/costs. And that was what also ticked me off... he stated that prices will still come down in most areas. Not sure what planet he lives on or what crystal ball he has, but if you network with realtors from all over, in many areas, prices have increased a little. But to tell a borrower to wait longer, just to get a better deal? Crap.. interest rates themselves are the lowest I have seen since I started in 1992. thanks for the comment.

LENN.... . WOW... thanks for that laugh and for that comment. You just made my day today. Seriously, all stress has left my body for the day with that comment.

JUDI... . I would think more with be with us on this topic than against it. To me, most of it is just common sense and what has happened in the last 3 years, as Pamela mentioned... loss of jobs, decreased income.. etc, etc. But yes, I firmly believe that you are truly ready to buy a home and it's not just because.. you have a purpose and the ability, then do it now. thanks for the polite words...

PAMELA... . in regards to Trulia, don't get me started... I find that 80% of the answers are bad, incorrect, or very misleading. Hence why we went out and started this... www.mortgagemythbusters.com

Overall... you do need to ask about the borrowers goals, short term and long term... get detailed and specific about their payment... and to dig a little deaper. And thank you very much for that polite compliment. thanks

Jeff,

"HOUSTON, we have a major problem with all of these homes upside down" "People need to put more money down!!!"

This was bad advice three years ago, it should be criminal today!

Who's better off? The person who's 20% equity disappears? Or, the person with 16.5% still in the bank?

Regarding your $350,000 example, regardless of the down payment $70,000 deprecation is losing $70,000, but who's better off? The guy with no equity and no cash or the guy with negative equity and $57,750 still in the bank?

Assuming a real financial problem (negative equity is not an acceptable reason to default) who's more likely to survive? The guy with no equity and no money or the guy with negative equity and $57,750 in the bank?

Who's the bank going to work with? The guy who's going to cost them very little? Or the guy who's going to cost them $57,750 more?

Losing equity doesn't have anything to do with losing a house, you lose the house for not making the payment you agreed to!

All of this assumes that the buyer has an additional 16.5%!

Bill

Jeff - People who put little or nothing down on a home did not contribute or lead to this mess.

People have little or no equity in their homes, or are upside down, more because of the economy. Many people are out of work and are not buying homes. When you have more homes on the market than people are willing to buy, prices have to go down.

Some of the things that led to the bust in the real estate market include (but not limited to):

"Liar" loans - these are the stated income loans, no ratio loans, and no documentation loans
"Pick-A-Payment" loans (aka Options ARMs or Negative Amortization Loans) - these loans in and of themselves are not bad products. But, they were designed for specific types of people, NOT for the average home buyer!
Interest Only Loans - again, these loans in and of themselves are not bad products. But, they were designed for specific types of people, NOT for the average home buyer!
People with credit scores lower than the character of "snake oil" salesmen
And the real biggie: Congress pushing banks to approve mortgages for people who do not qualify because of income and/or credit

I totally agree with Lenn's comment. This is another reason that I am not a big fan of Trulia. They do not monitor the comments that are made and there are plenty of idiotic replies. Sure, there many good ones, but too many idiotic or repetitive answers to filter through.

Why an agent in another state feels they MUST comment... and someone in yet another state has to repeat the comment slightly different makes no sense to me. You should only be able to reply in your location... not sure what to do about the duplicate responses yet, but I'll come up with something.

anyway, thats not what this post is about... I agree with Lenn. You should reply again and suggest that the agent sell shoes and perhaps stop responding on Trulia all together.

Jeff, Great post.

What stikes me is if the realtor says it is a declining market why is he even selling homes today. With his opinion, anyone that he is going to sell a home to is going to loose money because it is a Decling market. Maybe he would not expect a home not to be in a decling market if the put more money down. That just jumped out to me with your post.

I wonder what his Board of Realtors or Broker would think of his comments.

I believe this should be featured to highlight people need to be careful of what they say or post. Pardon me it is one thing to be thought a fool and another thing to put it in writing. Just my opinon.

BILL.... . bingo, you lose the house for not making the payment. Now, it can be argued that some let the house go, because it was underwater. My brain is not doing so well now, so I can't remember the term for that. Thanks

LEW.... . you brought up some good reasons why many homes went into foreclosure. But the statements that this realtor made? wow... what happened to common sense.... ?? PS.. and yes, when congress pushed hard for Fannie to extend financing to more home buyers... rut row... Congress, butt out please.

JOHN.... . yea, you got off track... lol And I will still keep interacting with Trulia, for a few reasons. Overall, I just want to educate the average home buyer and some realtors... thanks

TIM.... . good point... why is he even selling real estate then... lol Hey, put 20% down, because you will break even. If stock brokers acted that way with our money, RUT ROW... lol And thanks for the polite comment.

Jeff,

It's called strategic default, It requires situational ethics.

It's simply refusing to make the payments you agreed to, as opposed to those unfortunates who can no longer make the payment.

Bill

JUN

2010

Wow, can you provide the Trulia realtor's contact information because I'm looking for a business partner? LOL, just kidding! As you say, everyone is entitled to their own opinion. I just hope no one is taking it as sound professional advice.

First of all, if the government demands 5% down, there is absolutely no incentive for using government backed loans at all. Might as well leave mortgages to the free market, especially in the light that Fannie & Freddie now have $130 TRILLION in unfunded liabilities. That sounds to me like irresponsible Government behavior, not irresponsible borrower behavior!

Second, responses like the one you cite from this Realtor are one of the reasons buyers are so fearful. In other words, Realtors and others in media with opinions like this are actually CAUSING part of the overreaction that drove home prices down further than a normal downturn would have. With "friends" like this, who needs enemies?

Jeff,

These Trulia questions are just a lawsuit waiting to happen. I've seen a lot of boneheaded answers. The ones I love are the agents from hundreds, and thousands of miles away commenting on local market conditions.

Rich

Jeff:

I feel about this agent the way I feel about many who respond to questions on Trulia. What is he doing in the real estate industry?

Doesn't really matter how much down when it comes to being upside down today. Only matters how much a bank that made the loan is willing to loose.

This is a classic example of the "weakest link'!!! AS if the amount of down payment has anything to do with declining market values !!!!!!!!

I'm betting that real estate agent you quoted doesn't hesitate to buy a new car, KNOWING it will be worth less the moment they drive it off the lot. If they finance that car, they're "okay" with it because they want/need a car and they can afford the payments - regardless of the fact they owe more than the vehicle is worth for the first year or more.

I have been limiting my Trulia answers to local questions, not even Mi anymore. Real Estate is too local even down to certain towns and cities.

WILLIAM aka BILL.... . thanks buddy, it had completely slipped my mind.. just couldn't think of it at the time. thanks

JASON.... . no, I want him as my referral partner... lol Seriously, one main reason why I posted this. I want other buyers to read this, just in case they come across realtors such as the one that I mentioned... thanks

BRIAN... . well, I will semi disagree... there would still be some incentive for using FHA products even with 5% down. This is why... - FHA loans vs Conventional Loans with 5% down - It still depends on your credit scores and if low, FHA will still be a lot cheaper. But you make a great point about the government's irresponsible behaviors...

In regards to your second part... yes, one of the main reasons why I wanted to write about this, to shed some lite to borrowers, so they don't run for the hills, because of statements such as these... thanks

RICHARD.... . boneheaded? lol Don't get me started.. and yes, the ones from thousands of miles away are the ones that really get to me. I just don't get it... are those same agents on every state, for each question? SAD...

CLAUDETTE... . I am not sure... trying to save the world? lol

GABE... . good point. What ticks me off about this guy and many other realtors that talk about being upside down in some time period, is that they lose sight to the reason why someone would be buying the house to begin with. Yes it's an investment, but over time. You don't buy a house and want to sell it in 3 years. Not unless you are moving because of work or some other unseen circumstance... Just my opinion.. thanks

MICHAEL... . lol ... Good one... that would have been a good title... and now you have me thinking of something else. But yes, the two are completely different. thanks

MARGARET... . that would be a great point to throw in his face.. but then we would be all over the map, yelling at each other... lol thanks

MISSY.... . I only answer mortgage related questions in NJ... I could in PA and FL... but I don't have the time... and I am focusing in one spot. But this person was in NJ... so that is a mute point. It's just that his answers & opinion could scare off some potential buyers... even good ones, but who don't have 20% down...or if they do, they might feel like they need to put all of it down... now they are broke. thanks

I only answer Trulia questions for my local market, but I have two buyers right now because of answers there.

This is a bit off topic, but I laugh at some of the shark mentality comments that Realtors® give. What is a buyer to think when they have a string of 5-6 or more "call me" "I'm the best to help you" comments? It's laughable. My buyers were turned off by that and together they total almost $1,000,000 in business.

Excellent post...one of the best things that has transpired with the state of the housing industry the last few years, is that the uneducated knowledge-lacking professionals have left the industry...well maybe not all of them

I don't argue with people like that because you aren't going to change an opinion with another opinion. It's better to give them facts such as a snapshot of foreclosure rates as of fourth quarter 2009 from the Mortgage Bankers Association:

Subprime loan foreclosures: 15.58%
FHA loan foreclosures: 3.57%
Prime loan foreclosures: 3.31%
VA loan foreclosures: 2.46%

Jeff: However much a person puts down is irrelevant. What is boils down to is how responsible is the person to make the payment. I'm not sure FHA loans are defaulting any more than conventional ones. Perhaps there's something I don't know. Thanks for the post!

Jeff - Wow. Thanks for this post. Sounds to me like the Trulia dude was talking out his butt. However, I am not an expert on butt talkers, so those wanting to know for sure need to go seek the counsel of true butt talking professionals, lest I lose my license for practicing outside of my field..

Oh, and to Elizabeth, comment #24 - holy smokes! Great stats!!! Thanks for sharing!

FRANK & SHARON... . I have only received one buyer because of Trulia... but I mainly go on there to answer, to educate others... just as we do on this new site of ours now... www.mortgagemythbusters.com But yes, most comments left on Trulia are self promotion and it makes me sick.. especially when realtors answer in the questions that are mortgage only related... thanks

MJ.... . isn't that the truth... even though so many have left the business, I think I have seen more misleading and incorrect facts that ever before... and thanks for that polite compliment.

ELIZABETH.... . arguing or not, I think of it as educating others. Even if I go back and forth with someone, at least others can see my conversation and a pattern... and possibly to get another view point and more educated. And thanks for those stats...

PAUL... . FHA loans are defaulting more than all other loans... but that is now, and because more FHA mortgages have been used in the last 2 years... and it's the economy, more loss of jobs, higher taxes, etc, etc

COLEEN.... . What, you don't want to be President of the 'butt talking professionals' club? As I stated, opinions are good in some cases, but this was way out in left field. thanks

Jeff, thanks. The information you put in your post is very helpful. As a realtor, I end up in this discussion all the time. Your information will be part of my next discussion. Thanks.

Can I put in my 2 cents that is an opinion and recommendation I have used for 20 years. Don't focus so much on the down payment although I wouldn't say it is unimportant. I have always told people to not max themselves out on theri ratios because one bad problem like a temporary job loss can throw you into the abyss. Live well within the parmaters of your means.

Live within your means. The amount you do or do not put down really doesn't matter (except for PMI purposes, I suppose). The opposite of that "agent"'s comments could probably be true any minute... What if we hit the housing bottom, and they put very little down on a house that's now starting to appreciate? Doesn't that mean their ROI is much better than if they put 10, 20 or even 50% down? (I'm not trying to say that buying a house is akin to investing! Just using the analogy for illustative purposes only)

JUN

2010

100% loans, especially those with MI are not the cause of the mortgage crisis.

We need more fiscal responsible in all aspects of the system. This starts by homeowners exercising good fiscal management. Then by holding our public servants accountable for their actions. Many of our public servants are exercising bad fiscal management in the public sector.

JUN

2010

Jeff, I see so much really, really bad advice on Trulia! Maybe these ignorant responders should join Active Rain and get an education!

JUN

2010

I agree with Pat. I continue to be amazed at infomration out there. Excellent post.

FHA gets people in homes..........

'nuff said ;)

JUL

2010

great post Jeff... FHA is one of our only options

JUL

2010

Great Post. FHA is a Great Program and has always been their for the 1st time and move up buyers.

Jeff,

I've discovered a great salesman is necessarily a great economist.

Steve

JUL

2010

If your in Florida you could have put 20% plus down and still be upside down. Home ownership is a long term plan and it's a home. I like your comments and I like Renee Burrows comment.

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Jeff Belonger-The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

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I have BLOWN a gasket in Real Estate !!! Using FHA loans & being upside down ?

What is the difference/advantages between other FHA loan lenders and the lenders approved for the NJ First-Time Homebuyer Program ?

There is still an underlying value in home ownership that does not involve dollars and cents.

- This is an excellent article by Richard Weisser. It's more than just buying a home. Thanks Richard..

FHA loans to 5% down? No seller concessions allowed? Rumors? - The government at its BEST again !!!! 10-02-09

I WANT your SKIN in this game !!! Give it up !!! 10-07-09

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