Caution couldn’t last forever. According to a new CNN report, banks are now offering home loans with as little as 5% down. This is good news for many homebuyers who up until recently had to offer to pay up to 20% down to buy a home.
Who is offering to lower down payments? We’ve heard that banks such as Bank of America, Wells Fargo and TD Bank are all willing to provide loans to qualifying homebuyers if the buyer can provide down payments of at least 5%.
With the Federal Housing Administration (FHA) dominating the loan market after the housing bust, reports indicate the agency’s reserves are now low and they have had to increase their fees. In fact, with the lax underwriting standards, the FHA estimates a massive financial shortfall. Given their financial situation, they have now had to increase their premiums.
For instance, some prospective homebuyers are now forced to buy private mortgage insurance (PMI) for the entire length of the loan, not just until paying a percentage of the mortgage amount. This can add significant costs to the loan and has forced many homebuyers to search for other financing options.
Good news for homebuyers
The good news is the housing market has been growing stronger over the last several years. In fact, experts note that since October 2011 the overall trend has been gradual expansion. Home prices and demand has also increased. With low mortgage rates home affordability has also reached record highs.
But unfortunately, many first time homebuyers lack savings to make large down payments, and other buyers who do choose to sell may have little equity in their homes. Experts suggest investigating whether you meet FHA mortgage guidelines, the VA mortgage guidelines or USDA mortgage guidelines. If not, Fannie Mae and Freddie Mae both allow up to 95% LTV on the purchase of a single-family primary residence.
Experts do suggest, however, that if you are interested in buying a home the time may be now- interest rates remain low- but don’t wait too long because home prices are rising. Wait too long and there is also likely to be fewer homes for sale nationwide. The good news is there are low- and no-down payment mortgage options for many homebuyers.
But should you buy a home? Without more information it’s tough to say for sure. Talk to a financial planner if you have questions about your ability to make a mortgage payment. Consider also, if you have filed bankruptcy recently your ability to get credit may be limited.
Should everyone buy a home?
Although everyone including banks, homebuilders, realtors and the government all want everyone to own a home, the truth is not everyone can afford a home. Unfortunately, however, banks and borrowers still have too little skin in the game. Banks often sell the loans after they are made, failing to keep the mortgages they underwrite. If down payments are lowered this also exacerbates the problem. Tougher standards keep many out of the housing market, but lower standards could lead to the same problem we had in 2008- too many people buying homes they cannot afford.
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