Mortgage Down Payment Dilemma
March 3, 2008
Home prices are falling. Inventories of homes for sale are up. In many ways this is a great buying opportunity for many of those looking to move from renter status to homeowner. But there are some pitfalls as well.
Consumers understand that there are many different factors that go into a lender’s decision to approve a home loan. These include such things as credit scores, employment history, and so forth. Another factor is down payment. Many industry experts are now suggesting that potential homebuyers will need around five percent as down payment these days. Other experts suggest more.
According to Guy Cecala, publisher of Inside Mortgage Finance, a first-time homebuyer in many geographic markets will need as much as ten percent as a down payment. He added: “I think before too long we’re going to see it up to 15 percent to 20 percent.”
Cecala went on to say: “Underwriting is getting stricter due to the anticipation that home prices will continue to drop in many markets. Without a substantial down payment, new homeowners could in the near future owe more than the home is worth. Those requirements, in turn, will prohibit some people from becoming homeowners.
“It’s the unusual first-time home buyer who will have access to that money and the credit to be able to buy a home. We may go back to the era where you had gifts to get a loan, or parents co-signed the loan. Lease-to-buy agreements also could gain in popularity,” he said.
For many new homebuyers the best advice might be to go back to the old days when people saved longer for larger down payment reserves.