“3% Down is the New 20%”, reads a headline from the Idianapolis Star. What this means is that lately, many financial institutions are offering new low down payments for loans. This is very helpful for homebuyers who had been discouraged. Especially after the financial crisis, getting loans for homes was hard.
These new low downpayment plans could be riskier for financial institutions.
“When we break out the foreclosure rates on FHA loans, they are always considered higher than overall loans,” said Daren Blomquist, vice president of RealtyTrac, a California firm that analyzes real estate dat. “FHA has a consistently higher default rate over the years, so there’s no doubt about it that when you have a lower downpayment, it’s a higher-risk loan.”
According to RealtyTrac, downpayment averages hit an all time low in 2011. It was 11 percent. This was also right before the housing crash. However, Blomquist said low down payments were not the main cause and would not cause another housing crash.
“It wasn’t just the low downpayment piece of it. It was very lax lending standards and underwriting standards,” Blomquist said. “Really, to qualify for loans, homeowners were not even required to document income or debt-to-income ratio, and I believe this time we do have much tighter lending standards in place that are documenting income and holding the line in terms of creditworthiness of buyers.”
Many people are not even aware of these low downpayment programs. Those people may still be hesitant about buying. Many of these plans, like those through Wells Fargo, Chase, and more, can especially help first time buyers.
If you want to buy a home in Miami but have been hesitant due to down payments, one of these programs could be right for you. At RE/MAX Paradise, we have many amazing properties to choose from in many areas of Miami, and our agents are happy to discuss any questions or concerns, including about financing a home purchase.