It’s Twenty Percent Down – or Bust

Interest rates are low and you’re saving up some down payment money for that lovely house in Rock Creek Forest or Rosemary Hills. But are you saving enough?  According to an article on the Wall Street Journal web site, in the near future you’ll need a minimum 20 percent down payment to buy.

The government is trying to re-write some of the mortgage lending rules to prevent another financial crisis stemming from too easy credit rules, and this new proposal is backed by the Federal Reserve, the FDIC, and the Office of the Comptroller of the Currency.  In addition to the 20 percent minimum, the regulation would require borrowers to maintain a 75 percent loan-to-value ratio for refinances, and a 70 percent ratio for cash-out refinances, i.e. refinancing up into a larger loan.

These new rules were created around the idea of improving mortgage-lending standards. If certain loans don’t meet the new standards and are sold to investors, they become subject to a “risk retention” rule. The up side of this rule is that banks must keep 5 percent of the value of all the mortgages they write, instead of passing it on to investors. The down side is that this could then raise borrowing costs on safer long-term, fixed-rate loans. Thus, even those with good credit would have to pay more to borrow, as in the new down payment requirement.

Some in Congress are concerned that the new rules will make it too hard for home buyers to qualify for less risky (and less costly) loans. They want to have as many well-qualified loans as possible available to borrowers.

The deadline for defining these new regulations is April 2011, but disagreements continue to delay any final decisions. The bright spot in all this is that at least some standards are in process for how and when banks can modify loans.

When planning your home purchase, keep in mind that these new rules could be in place by the time you’re ready to buy—and that 20 percent down will likely be the new minimum.

Contact me, Mynor Herrera, today for expert help buying or selling in the DC, MD, & VA areas! I also specialize in Bethesda and Chevy Chase, as well as the sub-divisions of Rosemary Hills, Rock Creek Forest, East Bethesda & Whitehall Condominium.