Financial Resource

Beginning sometime in early 2006, the home loan industry has experienced some of the most rapid changes since the 1930’s when the Great Depressions occurred. The most noticeable area that hurts potential borrowers the most is the requirements by underwriting have become much stricter and the down payments necessary are significantly higher.

The underwriting matter is a guideline which lenders implement to evaluate the risk factor associated with the applicant. The relative down payment is a determining factor as well. A down payment is the difference between the property’s purchase price and the loan amount from the lender. For example, if you buy a home for 0,000 and the mortgage you are approved for is 0,000, then your down payment is ,000 or 20 percent of the property value. Financial experts on talk shows have always lauded that if you cannot put 10 percent down, preferably 20 percent, on your primary home you should not buy it.
A down payment for a home is one the major influencing factors that associates risk or loss to the lender. The down payment serves as a cushion for the lender if a foreclosure were to occur. To illustrate, a borrower who puts down only 10 percent, this would only yield partial protection for the lender, if foreclosure costs were to exceed the 10 percent down payment.

According to research, homeowners who experience payment issues and have equity in their properties typically will list their home to be sold to evade foreclosure. As a result, the borrower will gain the equity, whereas if they let it go to foreclosure, the equity will more than likely be gone due to foreclosure fees.

Another fact why lenders place so more importance on the down payment is that borrowers who are able to save for down payment money are low risk candidates for having late payments. Lenders understand that saving for a down payment requires financial discipline; Of course, it is assumed the down payment is saved, and not borrowed. Underwriters search for proof that the money used for the down payment are, in fact, the borrower’s own funds.

Equity for homeowners is also impacted by the ups and downs in home sales prices, which can be substantial. As many of us know too well, since the turnoff the century until early 2006, home prices in some cities increased by 20 percent or more a year. Many financial skeptics knew this pattern could not sustain itself. Imagine, a purchaser puts nothing down on a home, then waits a year and has 20 percent home appreciation. They have as much equity in their property as a buyer who commits 20 percent down payment in a normal appreciating market.

Zero-down home loans were all too common. Although, once the market peaked and  home sales prices started to descend, down-payment requirements had to be adjusted accordingly. Currently, there are no zero-down home loans anymore except VA loans for veterans. FHA loans are still available with 3 percent down according to the city and county you desire, but conventional loans now commonly demand 10 percent down, and in some high cost or troubled areas it is even more. In addition, lenders require that borrowers have good credit scores and to document their income source. So, if you can document your income you can still get a low down payment as FHA loan have become very attractive to all buyers for single family homes up to four unit dwellings.

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