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Monday, March 7, 2011

Coming to a Lender Near You: 20% Down Mortgages (that's how you get the best rate and terms!)

20% Down Payment Required? WHY? 

The days of the NO money down mortgage are long behind us, folks.
20After the housing boom and subsequent crash, statistics revealed that those with little or no "skin in the game" were much more likely to default on their home loans.

At the same time, banks and mortgage lenders were selling off the bulk of their mortgages to investors, so neither homeowner nor lender was really retaining any risk.  As a result, politicians came up with risk retention requirements under the Dodd-Frank Act, which are set to take effect soon.

The requirement will force banks to hold onto five percent of the mortgages they sell to investors, unless of course, borrowers come up with 20% down payments.

If they do, the mortgage will be considered a Qualified Residential Mortgage, and the whole thing will be able to be re-sold to investors.
These types of home loans will be cheaper because of their marketability, meaning mortgage rates may be significantly lower if you're able to put 20% down.
And if you're not, you might be stuck with a higher rate and monthly mortgage payment to boot.
Banks and mortgage lenders have already been getting back to basics by requiring full income and asset documentation, along with more significant down payments.
So expect underwriting requirements to get tougher and tougher moving forward.
If you know you won't be able to come up with 20% down, there are still alternatives, such as FHA Loans, which only require 3.5% down, though those loans are subject to mortgage insurance premiums, which have risen lately.
Either way, expect mortgages to get more expensive, unless you're the most squeaky-clean borrower out there!