Comments on: How Big is Your Home Equity Cushion?

By: Angie

Angie — Wed, 07 May 2008 17:52:15 +0000

I think the most important step is to be realistic in what you can and cannot do. I’ve seen so many first time home buyers jump into something they cannot afford only because they have big dreams.

Do your homework done first if you are thinking about taking out a loan or mortgage. The time spent looking into your options can save you a good deal of money later on.

By: Home Equity

Home Equity — Sat, 11 Mar 2006 04:08:19 +0000

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By: samerwriter

samerwriter — Tue, 28 Feb 2006 05:53:46 +0000

You’re correct that my point was not well made. It’s been my impression that generally mortgages without 20% down do not get the best rates, and often end up paying PMI, making them an unattractive proposition unless it’s the only way to get into a house. As the article states, it also makes the purchaser particularly vulnerable to any downturns.

Your objection is valid — I don’t _know_ that these are low-quality borrowers. I have only anecdotal evidence; when selling a relative’s house last year the realtor commented that these types of mortgages (i.e. 0% down, 40-year, etc..) were generally low-quality borrowers. Again anecdotally, friends of mine who have purchased with little down have done so because they couldn’t afford a larger downpayment.

By: thc

thc — Sun, 26 Feb 2006 18:59:02 +0000

Samewriter makes an excellent point re: the relevance of a dollar amount vs. a ratio. However his factoid #2 is confusing. It shouldn’t be surprising that mortgages written in 2005 should have a low debt to equity ratio and it doesn’t follow that those mortgagees are “low-quality.” With the low-rate environment that we had last year, it made sense to borrow as much as possible.

By: Daveqr

Daveqr — Sun, 26 Feb 2006 12:50:18 +0000

A good site to get an idea of the value of your home is zillow.com. I think it valued mine a little high, but using their data I’m sitting at 134%. Not bad!

By: samerwriter

samerwriter — Sun, 26 Feb 2006 07:03:48 +0000

While this ratio might be useful for looking at macro trends, for an individual the actual dollar amount seems much more relevant. If I lose my job and have to sell my house, I care about how much cash I’ll get out of the deal.

I think a more useful ratio would be equity divided by living expenses. That would tell you how long you could survive on the proceeds from your house if you had to sell it.

I found the following two factoids interesting:
1) 80% of people with mortgages from 1985 have equity stakes of 75% – 80%. That’s not too exciting, but the fact that anyone has a mortgage from 1985 is — a 30 yr. mortgage from 1985 would be at around 14%! They need to refinance!

2) 30% of 2005′s borrowers have zero to negative 5 percent equity. Wow. That many low-quality borrowers is a pretty strong indication that the recent housing price increases are not sustainable.