The 20% Down Payment Myth

Qualified Residential Mortgage

By Gene Wright

In an article last month, I talked about a government plan that could have a huge impact upon the future of real estate: it's called QRM ( Qualified Residential Mortgage), being portion of the Dodd-Frank Act. In defining the proposed QRM, lenders will be required hold 5% of a risk of any residential loan unless considered to be a QRM, a loan that features a minimum of 20% down payment while meeting other borrower credit history and debt-to-income prerequisites.

Although QRM will not automatically prohibit loans from being created with less than 20% down payment, these loans costs will be substantially more, because the lender would be required to embrace a percentage of exposures involved. It appears there's speculation and deliberation surrounding QRM that is causing a number of low-down payment home purchasers to think they will be unable to obtain financing. These potential homeowners are hearing that real estate lenders are no longer going to grant them a home loan unless they put a minimum of 20% down. It seems these beliefs are coming from misinformation created by recent media accounts and even a few real estate agents and loan officers.

This is absolutely untrue. Mortgages are available to low down payment purchasers, both insured by the FHA and conventional mortgages supported with private mortgage insurance (PMI) Although media news accounts continue to put the emphasis on "doom and gloom", in reality market conditions in recent months have improved for the better. Although the housing crisis situation has created an intensification of underwriting risk deliberations, a back to "normal" lending atmosphere has started to pick up where it left off in a majority major of U.S. cities while mortgage rates hover around the lowest in many years. These reduced rates, when combined with many home prices being good deals, represent a period of extraordinary opportunity for prospective home buyers. Even though it can be challenging to stay up with quickly changing home lending procedures, real estate agents need to do their absolute best to maintain, at a bare minimum, a general grasp of those lending options presently available to help as many prequalified home buyers to stay in the housing market as possible.

Prospective home buyers require credible, reliable mortgage financing information which can be obtained through the partnerships we have created with home loan lenders who are current on the absolute best possible choices for prospective buyers.

Real estate agents, are probably the most powerful influence in the home-purchasing process, having the capability to provide clarification of misconceptions surrounding the present market while encouraging potential home purchasers who might have put off their home buying plans to resume full speed house hunting. If not, qualified buyers with small down payments may get out of the market based upon misconceptions, which becomes a missed chance for them to buy a home during a period of high affordability.

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Aug 30, 2011