Home buyers may need 30% down

http://www.boston.com/realestate/news/articles/2007/12/30/preapproved_and_ready_to_move_not_so_fast/

"Preapproved and ready to move? Not so fast"

Borrowers also have fewer shopping options as dozens of mortgage companies have also gone out of business in recent months.

Those that remain in business are asking buyers to more completely document their incomes. They are charging higher interest rates to those whose credit scores were considered good just weeks ago, and demanding much bigger down payments, especially for homes in areas where property values are dropping.

The changes mean that buyers with credit scores below 680 could have to front 30 percent down or more to get market rates on a mortgage.

I hope to be in the market for a home in 12 months, and there's no way I'll have 30% saved up...that's $75k on a $250k modest eastern MA home. My credit's good but 680's a fairly high bar. Sheesh.

http://en.wikipedia.org/wiki/Credit_score_(United_States)

Range of scores
A FICO score is between 300 and 850, exhibiting a left-skewed distribution with 60% of scores between 650 and 799.<2> According to Fair Isaac the median score is 723 (half of scores above and below) whereas according to Experian (using the Fair Isaac risk model) the average credit score is 678 (lowest scores are farther from the median than the highest scores). The performance of the scores is monitored and the scores are periodically aligned so that a credit grantor normally does not need to be concerned about which score card was employed.

Each individual actually has three credit scores for any given scoring model because the three credit agencies have their own, independent databases. As these databases are independent of each other, they may contain entirely different data. Many lenders will check an applicant's score from each bureau and use the median score to determine the applicant's credit worthiness.

VantageScore ranges from 501 to 990 and offers letter grades as well: A (901-990), B (801-900), C (701-800), D (601-700), and F (501-600).

I seriously doubt the avg. down payment will settle at 30%. I would guess it will revert back to what it was for many years! 20%

by putting a litte more than 20% you can also avoid paying for pmi.

Makes me wonder how many of these foreclosures were covered under a PMI...

I'd assume that if they are tightening up the down payment requirements and credit checks they might also be looking to go back to the old "not more than 30% of income for housing" rule as well. THAT ought to slow the market down a lot.



Laura

Going back to normal times, lets say most required 20% on a new home ande they loaned on 90% appraised value(close to fast sale value). Now lets take $100,000 home(its late I don't like complicated numbers), that makes the home fast sale vale 90K. You put down your 20K making the loan 80K, locking in a 10% equity for the lender. That is WAY over simplified, but I hope it makes the point for the next part.

With falling prices, and they are expected to do so for at least 18mos(reputable investors are using that figure) that calcs out to roughly a 30% decline from peak appraised to appraised value 18 mo down the road. They are still just trying to lock in that 10% equity figure. What does that tell you? That you would be FAR better off going very slow on a purchase, at least for the next 12 mos or so. You could save many thousands.

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