There’s been a lot of news about great bargains, government incentives, and first time home buyers lately. But if you can’t qualify, all this good news is meaningless. Now, I’ve already mentioned the importance of getting your credit and income prepared, but this market demands one more thing - cash.
Why Cash?
Long gone are the days buying a home with zero down - you have to put your money where your mouth is now. While it is certainly not the only criteria, a larger down payment definitely weeds out many potential “trouble” homeowners. Based on the past, exotic loans definitely caused a great deal of defaults - but low down payment requirements also moved a lot of unprepared individuals into homes they were not ready for financially. In a way, lenders determine your seriousness and credibility based on your down payment.
Don’t Be Scared
I hope tighter guidelines filter out certain buyers - but I also hope genuine buyers are not scared away. The good news to remember is that down payment guidelines are still relatively lenient. Sure, we experienced five to six years of lenient guidelines; but truth be told, that was not lenient, it was outrageous. Now, we’re shifting back to qualified homeowners and they should have no problem meeting these “new” standards.
What to Expect
Recently, FHA has eliminated seller financed down payment assistance. In addition, they have also bumped up their minimum down payment requirement from 3% to 3.5%. Fannie and Freddie on the other hand are requiring at least 5% down. In reality, these numbers are quite manageable for those who can actually afford homes. And although sellers DPA has been eliminated, gift funds are still allowed to finance down payments. When you consider all this, proper planning and saving leaves the window of opportunity wide open for many potential homebuyers.
The key is to start planning early and save as much cash as you can for a down payment. If you can save enough, not all of your money has to go towards the down payment either. This extra savings can be left as assets - and banks love to see sizeable assets in your account as well. Remember, your down payment is one aspect of getting qualified; make sure you also take these steps to qualify for your home loan.
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“Now, we’re shifting back to qualified homeowners and they should have no problem meeting these “new” standards.”
The only problem I see here is the basic supply and demand. The supply of housing available is larger than the supply of borrowers with excellent credit, especially as the economy continue to experience stagflation, meaning people are not making enough income to cover the costs of inflation.
In my opinion there should have been stricter building restrictions.
Thanks,
Dawn
It’s a double-edged sword really, but I do agree with the building restrictions point. I recently read a study that suggested that overbuilding created this mortgage crisis in the first place. The study compared Seattle and San Diego. Seattle, having building restriction, did not suffer from the “meltdown” as much as San Diego did, having no restrictions on building permits. Pretty interesting debate and a great topic.
Thanks!