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Thinking About Buying? How Much Do You Really Need To Put Down?

By Molly on October 20th, 2011

10 Comments

Recently personal finance guru Suze Orman made some comments during an interview with CNN about the current housing marketing and her advice for homebuyers. In her remarks, Orman recommended that homebuyers wait to make a purchase until they can put 20% down and they have an emergency fund in place as well.

Several CENTURY 21 System members we spoke with felt that while Orman’s advice is good, it is not feasible for many homebuyers and more importantly, it is generalizing and broad. Every homebuyer’s situation is different and for qualified buyers there are still plenty of other valid financing options.

After hearing Orman’s commentary, Todd Hetherington, CEO of CENTURY 21 New Millennium which serves the Baltimore/Washington D.C. area, said, “As an avid real estate investor and a broker/owner of a real estate firm for the past 21 years, I have to chime in with some respectful differences of opinion than those offered by Suze Orman. Suze’s comments in my opinion, though well intentioned, are far too broad and not applicable to the scenarios that we are creating day in and day out in our marketplace. A well-qualified buyer with a stable job that is going to be in our area for at least the next five or so years should most definitely purchase a home as opposed to rent one.”

Hetherington went on to say, “Rents in our area (Washington D.C.) are going up every month. Interest rates are at unprecedented lows. Housing affordability is at pre-2005 levels. We should be (and are) screaming from the rooftops- NOW IS THE PERFECT TIME TO BUY A HOME!”

Ron Clarke, CEO of CENTURY 21 Alliance which serves the greater Philadelphia market, added his opinion, “For any person who has stable employment, buying continues to be the best option.  Purchasing a home with an FHA mortgage with as little as 3.5% down, keeps the American dream of home ownership alive.  Real estate is an installment purchase and in many markets a mortgage payment with 3.5% down is less than a rental payment.  It is the cost of monthly housing that is the most significant in any family budget, buying not only seals in that cost, it allows consistency in family financial planning.”

Clarke went on to say that even though the housing market is still recovering, buying in 2011 makes a lot of sense for many individuals and families, “Even if real estate values stay stable, or decline in the near future, buying still works.  Interest is the key factor.  Historically low rates mean that monthly payments are affordable.  Today’s purchaser will often experience a lower real mortgage payment than those who purchased in prior years.  In the Delaware Valley and Philadelphia, PA area, for instance, a new purchaser experiences a monthly cost of home ownership nearly $ 700.00 less than 6 years ago.  Salaries have increased over those 6 years, so the true cost of ownership has declined nearly 1/3.  An increase in rates to the average of the last 10 years to 7% would mean values would need to decline 30%, before a mortgage payment would be less.  Prices in many areas of America are stabilizing, and even if prices decline, buying still makes sense.”

Clarke ended his persuasive comments with one powerful statement, “Remember, everyone in America pays a mortgage.  Pay yours rather than someone else’s.”

Real estate professionals – what do you think? Weigh in on the 20% debate in the comments section below.

 

Post Author

avatar Molly
Molly is a member of the @C21 social media team. When she's not live blogging from conferences or interviewing System members, you can find her reading about interior design, writing restaurant reviews, and imagining what the kitchen will look like in her Parisian dream home.
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10 Responses to "Thinking About Buying? How Much Do You Really Need To Put Down?"

  1. avatar Hugo Torres says:

    Though I agree that the comment was general in nature and current conditions make the percentage sizable to most, I agree with the overall philosophy of Orman’s message.

    A big part of the reason why we are facing today’s housing challenges is because we eroded the concept of saving towards home ownership.

    Even today, our office experiences buyer’s who “want what they want when they want it.”

    There is very little thought given to purchasing a starter home and over time moving up to the dream abode. This stems from the days when anyone with a pulse could gain a mortgage loan and then live well within their means.

    Times are favorable for buyer’s today yes. But we shouldn’t make the mistake of buying for the sake of buying. In order for us to not repeat the mistakes of the past we have to educate the generations of tomorrow the virtue of saving towards a goal.

  2. avatar Bob More says:

    Should not generalize the way she did. It is really poor advice for many people. Each situation needs to be evaluated based on individual circumstances and needs.

    I would bet good money that she is not a renter, helping pay some one else’s mortgage. In Fact, she may even be a Landlord.

  3. When I heard Suze’s message that buyers needed to save 20% to buy a home, I felt she was gravely misinforming the American public. Not only is Ron correct that buyers can buy with as little as 3.5% down, but that 3.5% can be a gift from a family member. And then with the assistance of the seller, and even the Lender, the buyers can have most, if not all of their settlement costs covered. So a buyer can buy a home with very little cash needed as long as they qualify with credit and job history.

    In the Philadelphia market, and in speaking with my colleagues around the US, it is clear that most buyers are just not good savers. They don’t have $10,000, let alone $40,000 lying around to put 20% down on a $200,000 mortgage. So many are buying FHA or VA or USDA where they can put little to no money down. They will not get a mortgage if they do not have good credit and an employment history. So to Hugo’s comment, it is pretty difficult to get approved today compared to a few years ago. That is good and bad because the strictness is protecting the lenders (and the economy-sort of), but hurting those who would like to buy.

    Buyers should focus on building up their credit and speaking with a Real Estate Professional AND a reputable Mortgage Lender to see how much they really need to buy a home. They need MUCH less than 20% down as Suze stated. More than half of the buyers today have no way to save that much money and they really don’t need to do so. It is all about the monthly payment right now-which is more affordable than ever. Thanks for this article, let’s get the word out there!

  4. I am of the belief that in working with consumers investing in real estate (note I said investing, not buying), I choose to discuss the transaction as an investment and not a purchase. The amount they need to begin their investment in real estate will depend on the mortgage program they can secure. To think along those lines opens up a whole new way of looking at the purchase of a home. It’s not a down payment; it’s opening up an investment portfolio that will begin to reap great rewards through time and care for their investment. When they begin looking at it that way, the amount of money isn’t looked at as a fee but rather a movement of investment dollars from a savings account at 1.5 percent to an investment that will be so much greater in the coming days. That’s how I choose to guide my clients during this very important phase of their adult lives!

  5. avatar Rebekah Snipp says:

    There are many advantages of home ownership in America. Interest rates are low and there are great programs available through FHA and VA in which buyers can put little to no money down. I agree with Kathy that lenders have strict guidelines in place to assist with the mortgage approval process.

    A Real Estate Professional assist buyers with determining what price point will work within their budget, discusses the advantages of homeownership, and puts plans in place for each buyers specific situation. Some buyers can purchase right away and be in within 30 days while other buyers follow a plan which leads to future homeownership. Over the years we have placed clients in homes after 1-2 years of following plans put in place to help them achieve homeownership. It’s so awesome to be involved with a client and be able hand them a key at the end of process regardless if it’s 30 days to closing or 2 years. As Realtors we have a fiduciary responsibility to our clients, our industry, and the general public. It’s about doing the right thing all the time. Appreciate everyone taking time to post and getting the word out about all the options buyers have in the current market place.

  6. I am a Suze fan but must agree with my colleagues. A 20% down loan option is great but you may miss todays incredibly low interest rates while trying to save that amount. Waiting could affect the amount of home you can purchase today. In the right circumstances, there is no doubt owning a home outweights renting. My concern is having an emergency fund – for your home. Use all options available to take advantage of a FHA/VA/USDA loan. Hold emergency monies … just in case. I would not want to see an excited new homeowner suddenly have a necessary repair or issue without the emergency funds available. Unfortunately, we all know things happen beyond our control. Home ownership offers many wonderful benefits and is the American Dream. There are also new responsibilities compared to renting. You will enjoy having your monthly housing (mortgage) payment increase your personal assests – not your landlords. Make sure you have an emergency fund available to protect this assest.

  7. Suze is obviously teaching Prudence to wanabe home buyers. Buy what you can afford. In reality we may need to stretch ourselves a little and take a risk. The current market lends itself to picking up bargain prices and people may be kicking themselves in a few short years for not acting now! Have an awesome week Century 21!

  8. I too am a Suze Fan……but she missed it on this one….Very few buyers in our marketplace put 20% down. Especially when speaking of those who are buying “average priced homes”. Teaching a buyer to accelerate thier loan and therefore reduce the term may be a better strategy.

  9. What a Great Article! Thanks Molly for spurring our intellectual juices yet again. =)

    Let’s put Suze Orman ( TV Personality ) to the side for a moment. =)
    The reality is that buyers have many options to purchase a home. WHether it’s a VA, FHA, Conventional, or Cash. All requiring a different amount of deposit and initial closing costs.

    We should all agree that with rates at the lowest we may ever see again and home prices depressed by 60% in some areas, NOW IS A GREAT TIME TO BUY!

    Yes, each individual situation is diferent and some people do not have the financial discipline to own a home. All of us Real Estate Agents need to educate our buyers and the world at all the positives and negatives.

    I believe that Century 21 gives us the tools and opportunities to do that. Keep up the good work!

  10. avatar Arthur Viente says:

    I will stop reading and supporting your posts, and refrain from working with any Century 21 agents until the company pulls all advertising from Rush Limbaugh’s program. Hard to support a company that supports such a pitiful person and program.

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