RTC Mortgage Blog

The Lowdown on Low Down Payments

November 13th, 2010 9:34 AM by Richard T. Cirelli

The Lowdown on Low Down Payments:


50% of all homes sold in the nation this year were by first-time buyers – the highest percentage in the 29-year history of tracking this information, according to an article in the paper this morning. What really caught my attention were these facts pertaining to how these homes were financed:


·         56% of all homes were financed with FHA loans

·         The median down payment was only 8% (4% for 1st time buyers and 14% for repeat buyers)

·         27% received a gift for all or part of the down payment

·         42% said financing was more difficult than expected

·         9% had been rejected by a lender


So, if more than half the buyers are using FHA financing and making down payments of only 4% to 14%, Realtors and Homebuyers need to be educated about the available options. Here’s what you need to know….


FHA Financing with just 3.5% down:


These loans are insured by the U.S Government against default by the Borrower. The minimum down payment on an FHA loan is only 3.5%. And, the down payment can be a gift from a family member. The maximum loan amount varies by County but in Orange, LA and other high-priced counties it is $729,750. Minimum FICO scores can vary by lender but can generally be as low as 620.


Conventional Loans with at least 5% down:


Conventional loans are typically sold to Fannie Mae and Freddie Mac and insured against default by Private Mortgage Insurance Companies (PMI). The PMI companies have recently loosened up the guidelines a little as our market has gained some strength. For Home buyers, the following general guidelines are available but it varies by PMI Company and Lenders can also impose stricter limitations if they choose:

·           5% down payments on loan amounts up to $417,000

·         10% down payments on loans amounts up to $729,750.


Minimum FICO scores are typically 720 for 95% financing.


The bottom Line:


·         FHA loans are great if the borrower has less than 5% to put down and the down can be a gift. They may also be better with larger down payments if the Borrower has credit scores less than 720.

·         Conventional loans are best with good credit scores and at least 5% or 10% down, depending on the loan amount.


Contact me for more details as there are too many too mention here.


Mortgage Rates This Week:


Last week we had the all-important Fed Meeting where they indicated that the Fed will buy an additional $600 Billion in Treasuries in an effort to keep interest rates low. The Bond Markets, which include the markets where Mortgage-Backed Securities (MBS’s) are traded, was on hold for a few weeks in anticipation of this very important announcement. And what happened when they finally made their announcement? Rates went up. Not by a lot but they have risen in response to that announcement.


Why? First of all, they had gone down prior to the announcement in anticipation. Remember, the stock and bond markets do not wait for the event, they move in anticipation of the event. If the professional Bond traders are wrong the markets quickly adjust. In this case they were fairly accurate and so MBS prices have adjusted back to the pre-announcement levels. Other factors influencing rates this week – concern that the Fed move will trigger inflation; concerns in the European markets – particularly Ireland; higher inflation reports coming out of China, and the list goes on. It’s a global market.


What’s important to understand here is that mortgage Rates are very volatile and can change in an instant – often over international affairs for which the consumer has no control or knowledge. It makes “rate shopping” an impossible task for Borrowers, not only because they don’t have knowledge but also because too many loan officers don’t have knowledge of what’s driving the markets either.


At RTC Mortgage I subscribe to services that feed information to me all day long about the trend of the markets and I use that information to try to time the markets and choose the most advantageous time to lock in my clients’ rate.
Posted in:General
Posted by Richard T. Cirelli on November 13th, 2010 9:34 AM



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