What happened to the 100% financing that allowed many people to buy houses who had nothing to invest in a house but their hope of watching it increase in value? Gone! Unless you have excellent credit and can document your income there is little chance that you can buy real estate with no down payment. Buyers need a down payment these days. Even with a down payment, you better have decent credit if you want the best financing in today’s wary real estate financing market.
Is that good or bad?
From a lender’s standpoint, a down payment lowers risk. It increases the likelihood that the borrower will repay the loan because the borrower will lose the equity that the down payment bought if he defaults on the loan. It also is likely that the borrower will realize that he is now sharing the risk with the lender. This realization may make the borrower more cautious in assuming this risk, make the borrower a better home shopper and decrease that likelihood that this borrower’s name will be added to the many names on the list of foreclosures across the country.
From the borrower’s standpoint, a down payment should secure a better loan program. Perhaps a lower rate or reduced costs or both. The new homeowner will also be reassured that there is equity in their property to cushion against possible financial emergencies.
Tags: business, finance, loan, real estate, short sale
November 27, 2007 at 5:12 am
I was told today you have to have a minimum credit score of 660 to get any kind of financing with Wells Fargo. Also, appraisers are having to use 3 solds, 1 active and 1 pending and adjust downward if properties have been on the market more than 3-6 months. In addition if the appraiser marks the box that says “declining market” they will adjust another 5% down from the appraised value, making the down payment even more important.