Three times in the past three weeks I have been in real estate related meetings when someone asked "So, how much do you have to put down on a mortgage these days, twenty percent?"  Each time my jaw dropped, and I explained that the down payment on a purchase can be as little as 3.5%....and sometimes as little as no down payment at all.  Their jaws then dropped, as they asked questions along the lines of "but, I thought it was nearly impossible to get a mortgage these days" and "but, what about reforming the mortgage market after all the crazy loans that were issued?"  These are reasonable questions and objections, which I then discussed with them, but what I hoped stuck with them is that you don't need to wait to buy until you have 20% of the purchase price as a down payment.

At this point it is important to note that having 20% as a down payment is not at all a bad idea –it is certainly something to be strived for – but it shouldn't necessarily limit your purchasing decision.  If home prices declined over the next few years, a larger down payment (for example, 20%) would help you to avoid getting stuck in a house with a mortgage you could not pay off in order to sell.  A 20% down payment can also lower your mortgage payment, as you will be financing a smaller amount, and you should not have to pay mortgage insurance in addition to the principal, interest, taxes and insurance.  Despite these benefits, however, waiting to purchase until you have a 20% down payment can significantly change when you are able to buy a house, particularly if you are a first time buyer.
 
Are there really loan programs that only require a 3.5% down payment?  The most frequently utilized loan program these days is the FHA loan program, which is underwritten by the federal government and only requires a 3.5% down payment.  The federal guarantee of the loan allows lenders to offer you lower interest rates, which makes the monthly payment more affordable to you.  Many (or most) first time buyers utilize the FHA loan program, however it can be used for mortgages up to $277,150 in Harrisonburg or Rockingham County.  

Isn't it difficult to get a mortgage these days?  A few years ago, it was said that if you had a pulse, you could get a mortgage.  Indeed, there were mortgage programs where your lender did not need to verify your income, nor your assets, nor your employment, etc.  It is certainly more difficult to get a loan now if that is our basis of comparison, however new mortgage guidelines are not absurdly strict.  Most people with reasonably good credit and with steady, predictable income can obtain a mortgage with reasonable terms.  One of my clients recently asked me whether a significant portion of contracts fall through these days as a result of buyer not being able to obtain financing – thankfully, this is not seen too often in our area.  If you are wondering whether you can obtain a mortgage, talk to a bank or mortgage company to quickly and easily be pre-qualified.  If you're not sure who to talk to, start by speaking with a Realtor, who can certainly give you some recommendations on reliable, professional lenders in the area.

What about mortgage reform?  It is true – there were some wild and crazy things happening in the mortgage market over the past several years, and new guidelines are now in place (and being put in place) to attempt to ensure that we will not travel down those roads again.  Despite these new guidelines, however, it is still possible for hopeful buyers with a reasonable amount of income to obtain a mortgage without too much of a hassle, without too much cost, and with very favorable terms.

What is next in the mortgage market?  Interest rates are still phenomenally low compared to the past several decades, so opportunities abound to buy and obtain a fantastically low fixed interest rate on your mortgage.  Many people predict that interest rates will rise as we continue through 2011, though many people have predicted that for the past several years without any great supporting evidence after the fact.  It is important to note, however, that changes to the mortgage market may be coming down from the administration.  Current plans are in the works to re-vamp how the mortgage market works, which some argue will increase mortgage costs to consumers.  

Each of the three people who presumed that a 20% down payment was required these days is a very smart person – but each of them had an incorrect assumption about the current state of the mortgage market.  If you are considering buying, or refinancing, don't make a decision based on your assumptions, or based on what your neighbor or friend tells you.  Talk to a mortgage professional who can accurately explain your options and help you find the best path for your future.
  

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Have any questions? Contact Scott Rogers at 540-578-0102 or scott@funkhousergroup.com