Tuesday, September 16, 2008

Readers input on down payment requirements

With all of the current turmoil in the financial markets, what is your guess on the change in down payments for 2009 and 2010? This isn't a stock market blog nor should it try to be one; but the current turmoil should have an impact on credit availability. So narrowing that down to mortgages, what do you think the impact will be?

Got Popcorn?


Rob Dawg said...

• 10 owner occupied hard down.
• 20% non-owner or 20% owner occupied with soft downpayment.
• PMI for anything short of 20% hard down.
• Ultraconservative appraisals cause trouble
• Banks become accidental landlords and institute rent-to-own.

The Anonymous said...

Its going to be different standards in each market and even within each market. Even though the DC region is labeled a "declining market", I know for a fact the close in buyers dont have to pony up as much cash at closing as do the exurban buyers.

for example, my soon to be neighbor assumed he would need at least 10% down and had the cash ready to go. However, he told me the appraiser looked at the 3.7 months of inventory and said he could not find justification to put the declining market tag on Arlington. Thus, only 5% down was required.

My guess is peak tigtening will be double what it is now. Thus, for regular markets it will go from 5 to 10% down, and for declining markets from 10 to 20% down, but not everywhere will be the same. The banks realize that overtightening will cause stable markets to decline and performing loans to go into default, so I doubt they will be willing to go too tight, less they risk a negative feedback loop.

stealthcat said...

From fiddling with some numbers, it seems like e-loan is already making it nearly impossible to get a loan w/ less than 10% down. I would guess that it would have to go to somewhere in the 10-20% range.

Of course, I'm biased, as I am hoping for such a situation (saving up!). It means that there will be some semblance of sanity restored to the market.

What do you think the ramification of 10% down and 20% down would be on prices in the South Bay?

sandman said...

The tightest I think we'll see (in the worst areas) will be:

Owner occupied:
- 15% + PMI with FICO >800, good job, loan <3X income, very low other debt
- 20% with FICO 800-730, or if bending one of the other rules above
- up to 33% as you go farther down the scale (500's will be listed near 33%, but will be purposefully blocked by other factors)

- 25% down minimum
- sub-700 FICO probably kills any deal
- Very easy to have a loan denied here. It better be a second home or you have a renter lined up (with a signed contract as proof?).

Why am I so bearish? Simple, there will be massive contraction in the amount of money available to lend. Banks will have the luxury of passing over all but the most credit worthy of borrowers. Besides, everyone knows housing only goes down ;)