20% Down Payment on Home Purchases?
If financial regulators have their way, you will need to have a minimum of 20% of the purchase price of a home to put down to obtain a mortgage or pay higher fees and interest rates. The proposed Dodd-Frank Wall Street Reform and Consumer Protection Act, if passed as presented, could really hurt the already slow economic and housing recovery.
What are they trying to accomplish? Regulators want tighter control of lending standards. They feel that in the past, loan originators and firms bundling the loans to sell as mortgage backed securities ( MBS’s) have taken too much of a risk in this area because they have no credit risk at stake. The Dodd-Frank Wall Street Reform and Consumer Protection Act would require lenders and securitizers to hold onto 5% of the loans so, in addition to the investors, they also have some stake in the loan’s performance.
What does that mean to you? According to NAR President Ron Phipps, “Better underwriting and credit quality standards have greatly reduced risk. Adding unnecessarily high minimum down payment requirements will only exclude hundreds of thousands of buyers from home ownership, despite their creditworthiness and proven ability to afford the monthly payment, because of the dramatic increase in the wealth required to purchase a home.”
Research done by JP Morgan on securitized products indicates that in order to entice lenders to take more of the financial risk, mortgage interest rates could go up as much as 3%.
Right now the mortgage rate is hovering at about 4.5%. If it goes up by 2% to 6.5%, on a $200,000 mortgage, a buyer’s monthly mortgage payment (principle and interest only) will increase $226.77/ month, $3,009/ year, and $90,277 over 30 years.
Bipartisan law makers in both the House and Senate are calling the proposal “an overly burdensome government dictate” that could “threaten a full-fledged economic recovery for years to come.”
The regulators feel the standard will only impact a small percentage of the market and the concerns are overblown.
No matter which side you support, if you are thinking of buying a home, you should consider purchasing now while rates are low and you can still get a loan with less than 20% down.
If you are in the market to buy a home or just considering your options, it costs nothing to learn more. Call or email Linda for a free, no-obligation, no pressure consultation – 910.409.3519, Linda@LindaMehner.com.