Down Payment rules changing?

The Obama administration is currently trying to force homeowners to have at least 20% down on your home purchase or refinance. If you can't come up with the down payment plus closing costs than you will be charged a higher interest rate and fees. Sixty percent of Americans don't have the down payment that unelected regulators not Congress are trying to require. Think of an average home in Montgomery county MD. Say 350k purchase price. That's $70,000 just for the down payment plus 10k estimated for closing costs. That price might be for a first time home buyer. What about a couple who bought in 2005 put down 20% and lost it thanks for the real estate crash? Perhaps the saved and can afford a 10% down payment now. Say they have had a few children since then and need a bigger home. The sales price is 585k and they saved 59k plus the closing costs. They can afford the payment and will break even on their current home. Meaning they really lost the large down payment from the original purchase. Excellent credit, high incomes, good solid borrowers. Under this new Obama plan these people would pay thousands of dollars in higher monthly payments. How much more? None can tell you for sure right now. I can tell you though that today the payment would be $2,826 p&i




Total payments over 30 years would be $1,033,669 estimated. Now if we raise that .25% which is the lowest increase I have heard then the monthly payment is $91 more a month or $32,760 over the life of the loan. Total payments then rise to $1,063.286 over the life of the loan. Remember each .25% increase costs $91. So if the rate increase is .50% which is VERY possible then it's $182 more to the couple per month. This simply will allow less people to purchase, less people to sell and not do anything to reduce the possibility that the mortgage will default.




Not to mention this was hardly the intent of the Senators involved when this proposal came to light. In fact research shows that lenders are better protected with an LTV of over 80% with MI then hitting some magic number of 20% down. Don't believe me? Ask the lenders they know this and price loans according to risk. Ask a lender if having 20% down on purchases of condos in FL mattered at all when that market was destroyed? It's just a number to make people feel good about the loan industry. To say they are "doing something" to fix the mess. Most of the mess has already been fixed and the gov't had precious little to do with it.







Locally this matters as few areas around DC have a majority of people putting down 20% Arlington was the leader with 45% putting less than 20% down and Prince William with 79% in VA. In MD 86% of people put less than 20% down in PG and 52% in Montgomery. DC was pretty good at 49%. Obviously you will put large segments of the possible home buying market out of the game. In the meantime you will have another flash crash of real estate values that affect everyone. If home prices crater, local government will be hit badly as tax revenue declines and programs are slashed and cut. So even if you don't own a home or don't plan on moving this does matter, it does affect you, it does make a difference to you. Don't wait until it's, too late. Call Congress and tell them what you think. The agencies will be collecting public comments let your voice be heard. Some low down payment loans such as FHA will still be available without the higher fees BUT are still higher priced loans. FHA has two type of mortgage insurance and are almost always higher monthly payments as a result. Right now we have two options conventional loans and FHA loans. The government starting with President Obama wishes to remove one of the options for you. Last time I checked removing options wasn't a smart idea under almost any circumstance. Especially when the one remaining option (FHA) carries a higher payment AND FHA has too many loans now and wishes to reduce the amount already. How will they reduce the loan demand? By raising rates and fees again. Hope this helps please let me know if there any questions.