#1 – Buyers need 20% cash down to buy a home
Did you know that some buyers can still buy a home with NO DOWN PAYMENT? The USDA Rural Development and Department of Veterans Affairs loan programs both offer 0% down payment options. In the case of the USDA, it is income and location restricted. For VA loans, active military and veterans are often eligible based on their time, type and years of service. There can also be some smaller local programs with very specific criteria that can get you close to no down payment too – the Minnesota Home Ownership Center has a great list of affordable loan programs.
For those that do not qualify for one of the programs above, there’s good old-fashioned FHA financing. For years this program was forgotten but with the tighter lending standards of today, FHA has come back into vogue big time. In the Twin Cities, loans amounts up to $318,550 can be financed with only 3.5% down payment through the FHA. Loan limits for other areas are available here.
One more thing to keep in mind is that FHA & VA loans may be assumable by the next borrower (with qualifying) and thus if rates are 7% five years from now and a homeowner can offer the remainder of their loan at 4%, buyers will be lining up to take advantage of that deal!
#2 – Buyers have to have perfect credit
Today people need to be able to demonstrate a history of managing their credit well – i.e. making payments on time, having other loans/credit cards, etc. They also need to have a stable career, which typically means 2 years of job history in their current line of work (schooling is taken into account for recent grads) and have a few bucks in the bank for unexpected surprises.
From my conversations with several different lender friends, today’s lending requirements are still less strict than they were in the 1990′s. So in the greater context of home financing in the last couple decades, it is still easy to get a loan if you are actually equipped to handle such a responsibility.
What has really made life tougher is that now each loan has no margin for error. Each loan application is being reviewed, re-reviewed and reviewed again. The underwriting department will often come up with what seems like crazy requests for documenting every last item of your credit and income. Unless you lied or “forgot” to mention something on your credit app, nearly all buyers are still making it to the closing table.
#3 – Banks are not lending money
Banks are lending tons of money. If banks wanted to lend less money they would simply raise the interest rates they offer to decrease the number of loans people request – simply not lending money doesn’t make sense. Even though mortgage rates are around 4% on a 30 year fixed rate loan, banks are only paying people .25% for their deposits – there is still money to be made! Further, many loans are sold off to others and thus free up the bank to re-lend that money again.
If you are qualified buyer (see #2) and are having trouble getting a loan, I’ve got a bunch of lender friends that would be happy to help you!