Is the 10 percent down payment back?
According to a recent article in Forbes.com, “A Return to 10 Percent Down payments,” the 10 percent down payment may actually be making a comeback. There are apparently some lenders who have approved 10 percent down payments on all loan types.
One of these lenders is based in San Francisco and is doing what is called a piggyback loan as of the first quarter of 2013. What a piggyback loan consists of is when one lender loans the first mortgage of 80% and then a second lender loan an additional 10% that is a second lien on the property. This allows the buyer to avoid paying PMI (private mortgage insurance). In the mortgage crisis of 2007 and now in bankruptcy courts, those second mortgages took a massive beating as they were the mortgages that were “stripped” or removed or received pennies on the dollar in short sales or foreclosures.
Since the crisis of 2007, lending restrictions have been so tight, to the point of being ridiculous. Underwriters ask for evidence from borrowers to the point of overkill, tracking every transaction in bank accounts, tracking payments, tracking expenditures to the point that some buyers are afraid to conduct their normal business while applying for a loan. We’ve had buyers who have had underwriters asking for information hours before closing; at what point does the due diligence become paranoia?
Understandably, lenders needed to recover from the bashing of the mortgage crisis. They went to the extreme opposite and now it appears that instead of finding the happy medium, silly mortgage instruments are making their way back into the market. A majority of lenders asked for the 20% minimum down which kept a lot of buyers on the sidelines. I’m sure that to qualify for the 10 percent down payment borrowers must meet strict criteria and hopefully it won’t lead to overzealous and careless lending practices like we saw a few years ago.
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