Date: Mon, 23 Jan 2006 15:41:06 -0600
From: "Elle" 
Newsgroups: misc.invest.financial-plan
Subject: Re: Buying a house and Consumer Debt
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"jIM"  wrote
> I think it's common sense to reduce risk by putting money
down on a
> house.

Putting money down on a house reduces risk for the lender,
since the borrower has more incentive not to walk away from
his/her debt.

But I don't see how putting money down on a house reduces
risk for a buyer.

> if the housing market is in a bubble, and a house has to
be
> sold for less than what is paid for, having the 10-20%
downpayment as a
> cushion when selling the house is important.

If the 10-20% of the house's value that would have gone to
the downpayment is instead put into a money market, I don't
see a difference in the cushion. That 10-20% that a
prospective home buyer may have lying around doesn't just
evaporate into thin air.

I think these days (with low mortgage interest rates and
lenders willing to roll the dice on people with a small or
no down payment) the only motivations for putting 10-20%
down on a house are:
1. Possibly a still lower mortgage interest rate from the
lender.
2. A lower monthly mortgage payment.
3. The emotional satisfaction of being that much closer to
full ownership of the house.

They're all good motivations, though. Still, if one believes
the return to be had from X amount of dollars will be much
higher in Y vehicle (say, the stock market) than in Z
vehicle (say, a house), then of course Y is a rational
choice, so borrow on the house.