Do I Have to Have a 20% Down Payment for a Home Mortgage Loan?
Home mortgages didn’t used to have such a high down payment. Back in the late 2000′s we say the heyday of the 0% down loan. It was not uncommon for people to just put down 2-5%.
But, then all of a sudden things changed. And if you’ve been around in the last 5 years, it’s easy to see why. Does the term Mortgage meltdown ring any bells?
Well, since the subprime loan debacle, and all of the bad loans out there, lending standards have gotten tighter… should I go as far as say waaaay tighter.
I’ve heard of 40% downpayment with a minimum 750 credit score to get the best interest rates.
For the average, however… I’m seeing a 20% downpayment needed.
The Effects of a 20% down payment Requirement from Potential Homebuyers
Future homebuyers may be required to put a 20% down payment according to the newly proposed rules. The purpose of this is to prevent another possible financial breakdown.
The rules that are being proposed are ways to put into effect the Dodd-Frank Wall Street Reform and Consumer Protection Act launched in the U.S Congress in the past year. One of the many rules are to ask for a 20% down payment in order to ensure that the home loans being sold by the banks in the secondary market are safe, said Robert Fletcher, the Ohio Association of Realtor’s executive officer.
Fletcher said that implementing the rule on the 20% down payment will disqualify 60% of potential homebuyers. Since the housing market plays a main role in the economy, removing buyers considered as low risk from the housing market will be a big hindrance to the recovery of the economy, added Fletcher.
In Greater Cincinnati, the average price of houses is at $151,080. With the proposed rules, this will require about $30,216 down payment excluding closing costs. This amount is more than the average price of most brand new cars that consumers can afford.
The purpose of the risk retention requirements like the 20% down payment is to address the challenges in the residential, commercial and loan markets. It seeks to provide a solution to their problems by asking the organizations that are selling securities to maintain an economic interest in the credit risks of their combined and sold assets, according to the rules proposed by the regulating agencies.
Aside from shooing away potential buyers to the housing market, another effect of a 20% down payment requirement on home purchases is that more and more people could not afford to buy a home. It may also cause banks to become less willing to let the consumers take a loan for a more affordable cost. Overall, it will reduce the housing demand, cut house prices and eventually hurt the industry of home building.
On top of the down payment requirement, the proposed rule may also ask the homebuyer to provide a credit history, a proof of income and a documentation showing that the down payment source is valid.
Based on this, you can expect that lending standards are going to remain high for quite some time. If you are looking to buy a house, then you are going to need to make sure you have money to put down, and you will need the credit score to support your purchase.
Could you afford to pay a 10-20% down payment on your home? from CRA NC on Vimeo.