Homebuyer Associates Mobile Menu

Wealth for the Modern Kids Part III

In part I of Wealth for the Modern Kids, I said that wealth can happen, but you need a plan and housing is part of the plan. Part II started a discussion of the 4 obstacles to home buying beginning with the Springsteen effect and Mom and Dad Syndrome (MDS). In part III I’ll address the final 2 obstacles that limit young home buyers.

3.  Down Payment

I’m Michael D. Holloway. My business, Homebuyer Associates, has represented home buyers for 27 years. We’ve helped over 1,500 people buy homes. I write a real estate newsletter that goes to 700 people. The Wall Street Journal (WSJ) was first published in 1889 and has a circulation of 2.1 million people. It’s hard for me to believe I get it right and they get it wrong. But I get it right…and they get it wrong.

The WSJ does a disservice to homebuyers when it makes statements as it did in the June 21, 2012 issue:

Today, most lenders require minimum down payments of 20%, though loans with down payments of just 3.5% are still available through the Federal Housing Administration. During the peak of the housing boom, borrowers could bypass pesky down payments by taking out second mortgages or obtaining mortgage insurance.

You can get a mortgage with 3.5% or 5% down. You will pay private mortgage insurance with less than 20% down but if the math works, with home prices and interest rates at an all-time low, why would one save to get to a 20% down payment and risk higher home or mortgage prices?

I’m not here to address the right amount of money that should be required as a down payment. I am here to say the WSJ is wrong and that I would be taking advantage of today’s low interest rates and low home prices.

According to the Case-Shiller Index, home prices are now at the cheapest levels since 1990 (compared to rents or household income). If the math works and you have a 5% down payment I’d think about buying a home.

4.  Confidence

Gordy (my father) was wrong about real estate (see Part II) but 100% right about free throws. He reminded me throughout my high school basketball years that “free throws win games.” The very old trophy from long ago says I shot 78% from the line. I practiced and I had confidence.

I don’t think anyone can give you confidence. You can put yourself in a position to make good decisions which can lead to success and then a higher level of confidence. Continuing to learn to learn (yes, learn to learn) will build on your level of confidence – maybe to the point that someday you will be confident and comfortable enough to buy a home. Continuing to learn – speaking metaphorically – is the equivalent of practicing free throws.

Having the confidence to buy a home requires that you are confident that you are good enough to keep your job or find a job. It requires a confidence that understands the difference between needs and wants as well as understanding the cost of owning vs. the cost of renting.

As a starting point, if you live in an area where home prices are cheaper than renting, then buying a home makes sense because you need a place to live. The starting point would be to get the information needed to compare the two to help you make a confident decision about whether to rent or buy.

There are no guarantees in life. Some risk can be fun. I keep a note from a book by Joseph Campbell nearby to remind me of this. He quotes an ancient Indian saying:

A bit of advice given to a young Native American at the time of his initiation:

“As you go the way of life, you will see a great chasm. Jump. It is not as wide as you think.”


Thanks for reading. Contact me if you have any questions about the real estate chasm.

Newsletter sign-up

Homebuyer Associates
1835 N. Riverwalk Way
Milwaukee, WI 53212
Phone: 414-254-4129