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The Centerpiece of the New Lending Standards
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It is hardly surprising that house-price inflation during the go-go period resulted in a drastic weakening of underwriting requirements in general and down payment requirements in particular. Zero-down loans became increasingly common.
Just as rising prices generate homeowner equity, falling prices destroy it. When the market turned and home prices began to decline, down payment requirements were drastically revamped.
There are no zero-down loans anymore, except those from the Department of Veterans Affairs. Federal Housing Administration loans remain available at 3 percent down, but conventional loans now generally require 10 percent down, and in some areas more. On top of this, lenders now want most borrowers to have good credit scores and to fully document their incomes.
Down payment requirements have a critical impact on the ability of people to afford a house. If buying is in your plans but you have never been able to save, it is time you learn how. The secret is to give saving high priority in your budget.
Decide what part of your income you can afford to save, and create a special account. Immediately after you are paid, write a check to that account. If you view saving as a residual -- what remains of your income unspent at the end of the month -- you are giving saving the lowest possible priority, which practically guarantees failure.
Jack Guttentag is professor emeritus of finance at the Wharton School of the University of Pennsylvania. He can be contacted through his Web site,http:/
© 2008 Jack Guttentag
Distributed by Inman News Features
