21st Century Home Buying and the Down Payment Dilemma

In the 20th century we used to provide a 5% to 20% down payment when buying a home. A good down payment is not as much in demand for some lenders today. We are constantly bombarded with invitations to buy a home with little or no money down! Some lenders even offer to pay your closing costs! فروشگاه آنلاین بوت

We hear about these specialty loans every day. They are sold in support of the adjustable rate mortgages, and interest only mortgages that are designed to provide funding to anyone that can “fog a mirror”.

In the past, not much happened without a down payment on a home purchase. If we get back to basics, the general expectations would be a down payment of 10% to 20% of the purchase price. The better your credit score the less money needed, depending on your overall package. A down payment of 20% would also eliminate the need for private mortgage insurance (PMI). Getting rid of the PMI is going to save you at least $40 per month on your $100,000 mortgage payment.

A 20% down payment also puts you on much more solid financial ground. This kind of footing makes it possible for you to take maximum advantage of the property appreciation that most real estate investors and home buyers expect.

Another benefit of a good down payment is it mitigates the periodic market reversals that tend to wipe out gains in market value and leave home owners owing more than their property is worth.

I realize that 20% down may seem unattainable for most home buyers. It actually depends on the situation. For example, if you are selling a property that has no mortgage on it, you are an excellent prospect for a 20% cash down payment. Your challenge becomes finding the right buyer. Don’t worry, it may not be as difficult as you might think. We can help you think outside the box.

Earlier I mentioned the importance of your credit score. According to the Federal Home Administration, (FHA), “a low down payment is the best predictor of a loan default”. Understanding this fact makes it difficult to have much compassion for the so-called “sub-prime lenders” that make poor credit borrowers their primary customers.

Unfortunately too many people have been and continue to be seduced into home buying financial commitments that in too many cases fail. Just look at the news headlines. Every day we read and hear about another sub-prime lender that has suspended making loans, executives have been fired, companies have gone bankrupt, etc.

The human casualties are even greater. RealtyTrac(TM) (www.realtytrac.com), the leading online marketplace for foreclosure properties, recently released year-end data from its 2006 U.S. Foreclosure Market Report, which shows more than 1.2 million foreclosure filings were reported nationwide during the year, up 42 percent from 2005 and a foreclosure rate of one foreclosure filing for every 92 U.S. households.

As bad as these facts are, things are poised to get worse. In each of the next two years more than $1 trillion in adjustable rate loans are to begin adjusting! The fallout from these events will be widespread.

For every adversity there is an equal or greater benefit. We must prepare ourselves to make the needed changes to take advantage of the constantly evolving housing marketplace.

I think it was Dr. Martin Luther King, Jr. who said, “We are entertwined in the fabric of destiny. That which affects one of us directly affects all of us indirectly.”

The USA has the dubious distinction of a national personal savings rate of -1.2%! Our historical average is between 8% and 10% of income.

Until something changes, the late payments, foreclosures, and bankruptcies will continue to run rampant. Instead of becoming easier, home ownership could become more difficult than ever.

One thing that must be done is for each of us to save more money. You may ask, how does a country with a negative personal savings rate find the money to save? We must learn to work smarter, not harder. We must learn to apply our creative genius to the problems facing us. There are easier, faster, and much smarter ways to buy and sell homes, for example, than we realize.