The following article appeared recently about down payment assistance
May 11th, 2009 category: Buyers
The following article appeared recently on msn.com, and is the one titled: Keepin’ it Real Estate- Sub prime Lending is Back with a Vengeance.
The article takes issue with the $8,000. home buyer tax credit, as well as questioning the latitude in some states that afford assistance with a down payment.
I recall, waaay back in the 1980’s, that the advice offered to potential buyers was always, “Put as little down as possible.”
The idea behind the advice was that holding onto your cash would prevent a cash-on-hand “loss”, should your house decline in value, in addition to providing a cushion in the event that things went financially awry.
What the author of the article is missing is that our current mess has a whole lot less to do with money down, than it does extraneous forces that made the decision that a pulse was sufficient (in addition to little down) for borrowers, and that a personal guarantee (unenforceable) of income could be provided without documentation. “Low doc” and “stated income” loans are the culprit, not the amount of a down payment.
Back in the FHA heyday, while a down payment was minimal (3%), buyer qualification was DOCUMENTED. Employers were contacted; there was a specific form sent to employers questioning the likelihood of “continued employment”, and overall, the process took seriously the need to keep ratios of a buyers house payment/debt in line with a realistic lifestyle. That all info on a credit application was verified was key.
VA loans have always offered a zero down program; lenders in a past life always confirmed the information provided by the buyer. There was no “winging it” in those days; no “stated income” (unless a buyer was able to put 20% down); no nonsense. VA loans were considered a gift for those that had served their time for the rest of us, and the buyers themselves were put through a financial microscope.
If you’re a seller wondering about buyers using a loan program that provides an alternative to 20% down, know that a buyers ability to get a mortgage is now largely predicated on their credit score, as well as stability- if a buyer chooses to take the oft-given advice to put less down, it makes them no less a candidate for your home than a buyer with 20% down.
Just an opinion.
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