Home Down Payment Options
With the mortgage debate being front and center in today’s economy and political environment, experts point their fingers at government regulators being unable to agree to a minimum down payment on mortgaged properties.
Most experts unanimously agree that the days where 100-percent financing was a mere loan application and phone call away are long gone, forever related to the housing bust of 2006. In fact, statistics show that homeowners that put a minimum of 20-percent down on a home have a lower likelihood of defaulting on their mortgage, meaning less hassle for banks and the economy.
To dissect a basic example, consider a home that costs $100,000. Under a 20-percent loan-to-value ratio, a borrower would be required to put 20-percent cash towards the down payment of the home. This would leave a remaining $80,000 that would require bank financing. Now let’s say the house never appreciates in value over a period of five years. When the homeowner’s go to sell the home, they will have paid down the principal amount of $80,000 and have an additional $20,000 in equity. Having equity in a home gives homeowners flexibility and options, especially if they are required to sell their home for a job opportunity or face an expensive medical crisis.
However, as with anything, there are two sides to every argument. Advocates against requiring down payments are voicing their concerns that lower income consumers would be restricted from purchasing a home and thus becoming homeowners. These advocates promote curbed lending rules to help accommodate lower income families, especially those where high down payments are not feasible.
In 2013 additional government regulations that went into affect include borrower’s debt-to income ratio not exceeding 43-percent of personal income. This means that debt payments cannot exceed this pre-tax amount.
Proponents of these new rules cite qualified statistics that well qualified borrowers with a low debt-to-income ratio and higher down payment options have a lower chance of going into a short sale process or foreclosure. As many banks feel overwhelmed with foreclosures, banking institutions are trying to drastically reduce their massive inventories and further prevent foreclosures from flooding the real estate market and also prevent destroying consumer credit. All banking advocates can agree that loan regulations are necessary to help boost the real estate market and the U.S. economy, and homeowner responsibility is a hot button topic.
While the government is trying to impose regulations that can further prevent a volatile real estate market collapse, finding an acceptable medium between consumers and the banking industry is proving to be an uphill battle.
My Hard Money Loans works with a number of hard money lenders to provide direct lender financing. Offering fast loan funding, they strive to speed up the long and monotonous buying process.