20% Down Payment… Says Who?
In a world where we rely on credit to get what we want; having to save for a down payment on a home almost seems foreign. Especially when it comes to your first home, if someone tells you a 20% down payment is needed —they might as well be from another planet! You all, that is $40,000 on a $200,000 home; for that amount you could drive off the lot with a brand-new car and not owe another penny!
I’m not alone in this thinking. In fact, Brian Moynihan, Bank of America CEO, said “down payment standards should be relaxed to just 10% to spur homebuying among Millennials”, during a television interview a few weeks ago. For the most part, we recognize the almost impossibility of saving that kind of money in today’s world.
Of course, the mortgage industry doesn’t want to put people into a situation where they have trouble repaying their loans but Moynihan adds, based on the statistics, there is not much of a difference in the performance of an 80% loan-to-value ratio mortgage and one with a 90% loan-to-value ratio or LTV.
Let’s stop here for a second, loan-to-value ratio is a quick way of comparing the amount they will loan you versus the amount the home is sold for. For example, if you purchased a home for $100,000 using a mortgage program with a 95% LTV you would only be required to have a down payment of 5%, which in this case is $5,000.
Maybe there is hope that in the future traditional mortgage programs will only require a 10% down payment but not to worry, those of us who don’t have a huge savings are not without options! The good news for so many of us is that there are loan options or mortgage programs that have made it possible to buy a home with a smaller down payment than the traditional 20%. It is important to note that for each of the different loan products/mortgage plans, there are different “must haves” in order to qualify. To see what options are available to you, call one of our loan officers or check out the Stockton Mortgage Website: