Should the FHA requirements for down payments be Increased or Decreased?

In John McCain’s March 25 speech on the economy in Santa Ana, California, he claims that home buyers should be required to put more money down when buying a home. He said, “Policy should move towards ensuring that homeowners provide a responsible down payment of equity at the initial purpose of a home.” He also says that he opposes reducing down payment requirements for FHA mortgages, and thinks that they should actually be raised once the housing situation returns to normal.

But then he stepped in to say, “You may recall that immediately after September 11th, General Motors stepped in to provide 0% financing as part of keeping the economy growing, we need a similar response by the Mortgage Lenders.”

So the question is, if 100% financing really is a big part of the foreclosure and lending problem, sould requiring a more substantial down payment be best for the housing market in the long run? Or should the government open up to make no money down loans more available to help stimulate the economy?

I don’t have any specific information, but I do believe that requiring a larger down payment for FHA loans would delay or even prevent home ownership for many buyers. As a Realtor who has worked with many first time buyers over the years, nearly all of my clients have not had a down payment at all. In addition, most of them asked for the seller of the house to pay their closing costs. It’s not just first time home buyers either. I have also worked with retired clients over the years who have bought houses with nothing down. In the short term, requiring a higher down payment would drastically reduce the number of potential buyers. The problem is that Americans do not know how to save money. If they did know how to save money, we probably wouldn’t be having a foreclosure crisis. With the way our current housing market is in Utah, this wouldn’t be good. We need all the buyers we can get right now.

In the long run, I agree with McCain. Home buyers need to be more responsible. They need to have something on the line, something vested in their home purchase. Putting money down on a house not only makes you more committed, but it also reduces your mortgage payment, and gives you better rates as you don’t have to pay for Mortgage Insurance. In addition, if you do end up having financial troubles you will have equity in your home and can sell it regardless of what the local housing market is doing.The current housing and credit mess has created its problems, but hopefully we are learning from them.

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It’s now harder to get 100% Financing in St. George

Private Mortgage Insurance or “Foreclosure Insurance” is insurance required by many loan products where the borrower doesn’t have at-least 20% equity. Loans where borrowers don’t have 20% equity are “more risky” and have a much higher chance of foreclosure. Because a 20% down payment is unrealistic for most home buyers, Mortgage Insurance was invented to back up these risky loans.

With many declining real estate markets, the mortgage insurance providers have decided that insuring the risky loans in these areas is now too risky. They have cut back on providing mortgage insurance in many markets including Saint George, Utah. AIG United Guaranty has “flagged” these St. George zip codes as “declining markets”: 84722, 84725, 84733, 84737, 84738, 84745, 84746, 84757, 84763, 84765, 84767, 84770, 84771, 84774, 84779, 84780, and 84781.

 Mortgage Insurance in these markets is nearly impossible to obtain for investment properties, second homes, and loan products that require less than 3% down. It’s still possible to get mortgage loans in these areas, just harder to get no money down, 100% financing loans.

The problem with less availability of mortgage insurance isn’t just reduced qualified buyers, but it also sends a message of speculation that these markets are still expected to decline in value. Consumer confidence is down, and many buyers don’t want to buy now because they think that by waiting, they will be able to get a better deal in the future.There are still lots of homes for sale in St. George, to search MLS Listings, click this link.  

What does your credit score need to be for a mortgage loan?

Since the mortgage meltdown and sub-prime lender crisis of 2007, a lot of potential buyers wonder, “What does my credit score need to be to buy a house?

Mortgage Loan approval requires a good credit score, verification of stable employment, and an appropriate debt to income ratio. Since September of last year these criteria have changed. With all time high foreclosures, lenders are more cautious in who they will approve for mortgage loans. “Sub-Prime” loans have almost died.

Buying a house with questionable credit is still possible, by using methods such as seller financing, rent to own, and lease options. Even with these options, buyers still usually need a substantial down payment, good debt to income ratio, and signs of credit improvement. Credit is very important for buying a home.

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Mortgage Mess is Effecting Utah Banks Too

According to a recent article by KSL, many Utah banks are suffering from the lending crisis. Lenders aren’t just suffering from sub-prime loans, but are hurt even more buy the many fraudulent lending practices and straw borrowers. Fraudulent Appraisers artifically inflated the value of homes, and people bought overpriced homes that they never intended on living in. Now many of these homes are foreclosing, the straw borrowers credit is shot, banks are taking huge losses, and their is a surplus of overpriced real estate for sale in Utah. Once again, dishonesty hurts everyone.read more | digg story