5. There have been times where mortgage institutions have allowed borrowers to put very little down. Sometimes as low as 1%. What are some foreseeable outcomes of very low down payments? Why does this suggest that historically, 20% down payments are the norm? Why do many people believe the financial crisis of 2008 was because of too many low down payment houses? House Value Year 1 (Purchase) Money Put down by purchaser (Down Payment) Bank Loan (Mortgage) Tax Rate Interest Paid to Bank (10% loan @ tax bracket) House Value at point of sale (after 3 years) Net Return on house investment (increase in house value payments to bank) Return on Equity = Net Return / Money put down $100,000 $100,000 50% $120,000 $100,000 $50,000 50% $120,000 $100,000 $20,000 50% $120,000 $100,000 $1,000 50% $120,000