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One powerful argument against buying a house with little or no down payment is that, if you cannot afford the mortgage payments, you could end up losing the house. That could happen if you lost your job, become disabled, get divorced, or have large unexpected medical bills. Foreclosures do occur.
If you lose your house, you're out money even if you had made no down payment. You've probably paid some moving expenses and closing costs. You're personally liable on the mortgage and your credit record will suffer. So it would be a true tragedy.
Another argument against a low or no down payment is that the less you put down, the higher your monthly mortgage payments will be and the longer it will take you to own the house free and clear. Besides, if you could make a 20 percent to 30 percent down payment, you might get better terms-like a slightly lower interest rate.
These are compelling reasons you might hesitate before buying a house with little or no savings. To succeed in buying a house with little savings, you should, above all, have a secure source of income in most cases, a steady job.
Essentially, the argument is that, in our society, the difference between being prosperous and not being prosperous to a large extent depends on your being a homeowner. For decades, moving to better housing has been an important ingredient in the upward mobility of American households. But today many households, rather than continuing to move up the ladder of housing progress, have stalled along the way. The reason is that fewer young people can afford the down payment required to buy homes.
The Down Payment Barriers
Some renters, unquestionably, like renting. They want to pick up and move at will. They don't want to bother with mowing lawns, shoveling snow, raking leaves, and dealing with plumbers, electricians, carpenters, and so forth. But many renters would like to own their own homes, and have positive feelings about homeownership.
 Rents Remain High
Making life just a bit worse for tenants, rents have been increasing. More and more renters are now paying 30 percent, 40 percent, and even 50 percent of their incomes to their landlords. Even though there are plenty of vacant apartments in some parts of the country, rents generally haven't declined.
House Prices Have Climbed
It's bad enough that many people cannot afford the down payment to buy a house, and that rentals meanwhile are going up every year. But there is still another problem: While house prices have cooled off recently in many parts of the country, they are still very high compared with years gone by.
Financial Benefits of Homeowning
Not owning a home may suggest that the person is facing a less prosperous life-a life of high rents, of no appreciation on housing, of no special tax benefits.
Most homeowners can deduct their mortgage interest and their property taxes in full from their taxable incomes. Because of their mortgage interest and property taxes, homeowners are more likely to be able to itemize their deductions instead of taking the standard deduction and thus saving substantial money on taxes. As tax rates have risen, the value of these tax benefits has increased.
When homeowners are over 55, they can wipe out $500,000 of their capital gains on the sale of their main house (if they've lived there for three of the past five years and meet certain other requirements). It's $250,000 for individuals.
Besides that, homeowners are forced to save. Every monthly payment they make helps to boost ownership in their houses. If homeowners have bought a good house in a good community, and maintained it, the house probably will grow in value. Over the long term, housing has handily bettered the inflation rate.
Houses have appreciated as much as stocks have, and usually without the volatility of stocks. Although there are exceptions to these observations, the conclusions should hold true for most people over a reasonable time period-homeownership as compared with renting should prove a sound economic choice.
True, unlike renters, homeowners must pay property taxes, must pay for maintenance, must pay for mortgages. But landlords work to make a profit. When you buy a home, you eliminate the middle-man. Renters become their own landlords and pay themselves (and the banks) what they used to pay the landlord.
Homeowners typically save more of their incomes than renters. And they are twice as likely as renters to be saving for retirement than even renters who are the same age as the homeowners.
Perhaps homeowners are simply better able to control their spending. That may be why they succeeded in becoming homeowners in the first place. Or perhaps it's because of the tax breaks they enjoy once they become homeowners. Or maybe it's because they have eliminated the landlord's cut.
The Other Benefits Of HomeOwning
As a group, homeowners are not just older and wealthier than renters. They are probably also happier. When a cross section of Americans were asked about the components of the "good life" in a poll conducted for the NAR (National Association of Realtors), homeownership was the item mentioned most frequently.
One reason homeowners are happier is that they're more likely to be satisfied with their residences. The privacy, the cost, the financial security, and the desirability as a place to raise children are what help contribute to the "good life".
Homeowners are also more satisfied with their neighborhoods, with reasons ranging from the public school system to their safety from crime.
The Case For A Low or No Down Payment
Granted, that most renters want to buy; that the down payment is their biggest obstacle; that homeowners enjoy all sorts of financial benefits; that homeowners probably become wealthier; and that homeowners are happier.
The question remains: If renters can't afford to save enough for a down payment, how can renters afford to payoff a mortgage, pay for property taxes, pay for maintenance, and so forth?
One answer is that the money renters have been giving to their landlords they can now use for their own home. And in recent years, while rents have been climbing, the cost of owning a house has not always climbed as rapidly. In addition, as mentioned, homeowners usually get tax benefits which could help balance their budgets. And being a homeowner seems psychologically to help people save.
Certainly, the costs of homeownership are formidable. But not as formidable as the down payment. Does anyone doubt that many of the renters who would love to own their own houses, but who cannot afford the down payments, would be able to pay for their own houses-if they had less of a down payment to make? The government thinks so. That's why the federal government helps renters buy houses with small down payments.
The transition from renter to homeowner can be difficult and stressful. But the rewards, may be well worth the risks. Especially if you take steps to lower those risks-by buying a good house in a good community, and making sure you have a steady job that provides you the income you need to succeed.
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