20% Down Payment: The Impact

by The KCM Crew on July 22, 2011 · 9 comments

Infographic

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http://www.rebyjd.com Justin

How did you come to these results? Where was the study conducted and with how many people. What was their demographic? This is great info but some people would like to see what kind of sampling this is from before they really bite into it. Thanks for providing great information!
http://www.steveharney.com Steve Harney

@Justin,
The data on those not eligible, delinquency rates and time to save comes from the QRM white paperissuedby a consortium of groups such as the Center for Responsible Lending. The survey referenced at the bottom was taken by Myers Research.
Pingback: 20% Down Payment: The Impact | Richard Barrow Utah Mortgage Professional
David

Steve,

What were the dates of the white paper and Myers Research? The QRM White Paper footnote says 2006.

http://www.steveharney.com Steve Harney

@David,
The white paper was issued in April of this year. The Myers Research survey was done last month.
Steve

James

You’re being disingenuous by quoting a study on default rates that was done in 2006 before the real estate collapse. Obviously no one was defaulting in 2006 when prices were still going up! It is not surprising that a change from 5% to 20% downpayment would have a minimal impact on default rate in an up market. The whole point of increasing the down-payment to 20% was to prevent defaults in a *down* market. The real question is, in 2009, when the market started going down and the huge wave of defaults started, how many people defaulted who had put 5% down vs. those who had put 20% down?

http://www.steveharney.com Steve Harney

@James,
Sorry for the confusion. The study was not done in 2006. It was done a few months ago. They studied delinquency rates from 2002 to 2008 (loans written after that have not had the time to mature enough to study their delinquency rates. Put another way, people usually don’t default in the early years of their mortgage). The delinquency rate in 2006 was actually HIGHER than all but one year in the study (2007). The reason we choose 2006 for the infographic is that actually national home prices, as per Case Shiller, peaked and then started to collapse in August 2006 (not 2009). Hope this helps.

http://homeloanartist.com Brad Yzermans

This is a hot topic and cause of default may differ slightly by geographic area. I can’t tell you how many people I know, (myself included) who defaulted and/or short sold AND who had put 20% down payment or more! I would be willing to bet 70% of the defaults in my area were caused by job loss or huge pay cuts….not because they put 3.5% or 5% down payment.

Does putting 20% down payment help you keep your job or prevent an employer form cutting pay? Or Nope. There are other underlying issues for default other than down payment when people purchased the home.

If all those who defaulted had put 20% or more, who lost a job and were then forced to do a distressed sale to avoid foreclosure, this too would have the dropped value of homes similar to how the current day short sales and foreclosures have impacted home values.

How come the USDA 100% program doesn’t have a wicked high default rate? Has almost nothing to do with the down payment.

Rather than worry about the size of the down payment, we should be more concerned about high debt-to-income ratios…..and fannie/freddie have already reduced that to 45%……it was at 64% back in the day.
someguy

before we jump and compare USDA…many of the most risky markets are not even available for USDA due too household income limit and location limts , we need to take into account were the 20% down came from. if the study was 2002-2008 many of these dowpayment loans with defaults were move up buyer who took advantge of upward housing market, only to place thier faux equity net proceeds right back into an inflated asset. therefore it wasnt the topic of reality of person saving 20 yrs for 20% down. they had nothing invested only inflated assets, live by the sword die by the sword. …