I just purchased with a FHA loan 3% down, it let me put around 5k in an ING savings account for just those unforeseen circumstances you refer too. I realize thats not enough so I will be adding to it as I save. If I would have had to come up with 19K I wouldn’t have been able to buy for roughly another 3 years, and there’s no way I would have been able to put any money aside.

I do agree with you that savings are an important aspect in this whole mess. But the sad truth is that the American economy is consumer driven and built on excess. I think the fix needs to be a stepped interval one or the entire system could easily collapse.

That is exactly why prices must fall to in order for realistic affordability to happen. The time tested rule of thumb is that the median house should be roughly 3 times median income. Median income in the twin cities is ~65k, that puts the median house at ~190k (very rough numbers). That’s another 20% drop in prices from where we are today.

If a first time buyer cannot raise 10%, they do what first time buyers have historically done… Rent and save until they have a down payment worthy of the name.

23k upfront would sideline too many home purchasers…I am not saying that 3% is the right number, but take it away and home prices have to drop somewhere in the 30-40% mark to be affordable to the masses.

My parents always talk about the ridiculous interest rates and the 20% percent down…usually they follow it up with something like how they paid 48K for their first house though.

Thanks for reading and for your comment Ryan!

The barriers to entry in the real estate were essentially nill. I saw programs with 90 hour commitments offering licenses for agents and mortgage brokers…well they didn’t even require a license.

The entire industry was essentially one gigantic circle jerk. I saw it first hand in multi-housing rental industry. Every month we would lose residents that constantly missed their rent payments to home ownership. Folks that made 40k were buying 250k townhomes. Realtors, mortgage brokers/banks all were selling them down the line.

These folks could barely afford to scrape together a house payment let alone deal with a dead fridge or furnace.

I saw tons of folks pissed off because their RE agents and mortgage broker had failed to even ask them if they were in a legally binding lease let alone call us for due diligence. Sell them now…deal with that later:that was the mentality that I saw day in and out. A real estate agents responsibility to their client is to act in their clients best interest. Time and time again I saw residents whose agents were acting in self interest only.

Lenders like Countrywide and Ameriquest, they didn’t care, once the deal was done they packaged it up and got rid of it. Somebody elses problem…

I would be remiss to say that the people who borrowed past their means were not complete idiots but they were caught up in the machine, and it was a well greased one. Hell even the government was “selling” home ownership; it is “The American Dream” after all.

So yeah, now we are in a correction; lending tightens, housing prices fall another 15-25% to deal with tight credit, the economy stabilizes in mid 09 and we find a decent equilibrium buy spring 10. Its going to be painful till then but well get through it

My fiance and I were pre-approved for a conventional 5% down 30 yr fixed. We found our house and now had begun the ridiculous process of getting the mortgage. About two weeks in (mid May), our lender tells us that Fannie May had changed the rules and we now needed another 5% down if we wanted to stay conventional. This freaked out the sellers who thought we were just jerking them around by changing the financing. By the end, we the buyers, had to call the sellers to calm them down and assure them we were still serious about buying the house. Then on top of that, after we had turned in all of our documents, the lender took forever to get our documents through underwriting. We did not have the most complicated file ever, it was all pretty basic. We wound up not closing on time (4 days later) because the underwriters had not yet looked at our file.

I put the blame in this case on the mortgage broker not handling the deal with the actual lender properly, and then the lender not handling the file in a timely manner.

Oh yeah, and then at the end, once we had switched to a 5% down FHA, in the closing documents, the lender forgot to provide for insurance money in the settlement statement. (I’m pretty sure that is a requirement of FHA loans, to include escrow, and fund the escrow in the closing fees). So, after closing, I had to go write a separate check to my insurance company in order to make sure my house is insured.

This was a terrible “first time buyer” experience. I am horrified that I will again have to venture into this morass sometime in the future.