This Is NOT Your Parents’ 3% Down Payment Plan

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In their latest Housing Market Insight & Outlook report, Freddie Mac revealed that recent low down payment initiatives have raised concerns that we may be returning to the same lax mortgage qualifications that caused the housing crisis from which we are just now recovering.

The report went on to explain that today’s underwriting guidelines are nothing like those that existed just prior to the housing meltdown.

“Pre-crisis underwriting allowed layered risk, that is, the combination of multiple features that amplified credit risk. Low down payments often were combined with variable-payment loan structures, property-based underwriting, and questionable appraisals. These risk factors, along with the ‘irrational exuberance’ of some borrowers, led to large losses during the crisis.”

What is layered risk?

In the pre-crisis environment, many mortgage loans incorporated several additional features besides low down payments that multiplied the total risk of the loans such as: variable payment options, underwriting based on the property not the borrower, questionable appraisal processes. Borrower expectations were also overly optimistic at that time.

Freddie Mac highlights the difference between then and now by using a table in the report:

3-Percent-Down

 

By removing the “layered risk”, we can be confident that low down payment programs will not impact the market the way mortgage underwriting impacted the market a decade ago. And the report explains:

“Previous research has found that reduced down payments can increase the relative probability of homeownership among some groups by over 25 percent.”

Bottom Line

We believe the report’s conclusion says it all:

“As long as the underwriting process bars the return of the layered risks prevalent in the pre-crisis era, lower down payments are not a cause for concern.”

Contact Jo Anne or Tony Rizza at 843-301-5825 for more information on the current Hilton Head Island/Bluffton real estate market.

Hilton Head Real Estate Partners
Partnering with you every step of the way.

The Main Reason You Should Not Wait to Buy…

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The Joint Center for Housing Studies at Harvard University recently released their 2015State of the Nation’s Housing report. The report concentrated on the challenges renters in this country are facing because of the diminishing supply of quality rental units and dramatically escalating rents.

However, there was also information buried within the report that revealed that now is definitely the time to buy your first home or move-up to the home of your family’s dreams. With home prices still below peak values and mortgage rates still near historic lows, the monthly mortgage payment on a median priced home is less than at almost any time in the last 25 years.

Here is a graph which helps visualize the data from the report:

Median-mortgage-payment

 

Bottom Line

With home prices increasing and mortgage rates projected to increase, now is the time to buy.

Jo Anne or Tony Rizza are available at 843-301-5825 to provide more information on the current Hilton Head/Bluffton housing market.

 

Hilton Head Real Estate Partners
Partnering with you every step of the way.

Hilton Head Island Homes / Townhomes for Sale $500K – $749,999

Hilton Head Island SC homes / townhomes for sale between $500K – $749,999


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