Down Payment

Money

In the “never a dull moment” world of lending it sure seems like the programs offered, along with the criteria expected, changes every week. In fact, the criteria has gotten signifcantly tighter. Maybe the most significant area among these changes are the minimum down payments lenders are now requiring before they’ll give you a loan. For many lenders those minimums are now 15% and some are even 20%.  Long gone are the zero down, stated income, days of the past! 5% down deals were not uncommon last year and I had several sales this year where the buyers had 10% down but those options have shrunk considerably as 2008 has progressed. You can still buy with less down, several lenders offer FHA backed loans that will allow 3% down, until the end of this year, but there’s alot of hoops to jump through to get them. If you’re a lender don’t hesitate to comment about your lower down programs. My point though, is that the chances are that to get a really good loan product you’re most likely going to need more cash going in.

If you’re moving up from an existing residence the chances are pretty good that your down payment is coming from that source but in many other cases, and especially with first time buyers, acquiring a 15% down payment around here could pose a bit of a challenge. A typical first time buyer in Foster City is going to be looking for a condo or townhouse and the median price for one of those right now is $552,000…thus a down payment of at least $82,800 will be needed. Certainly, there are plenty of folks who are good savers and plenty of others who have great options but there’s also many out there who’re going to feel like it’ll be years until they can save up enough to make this crazy dream work. For those folks, here’s my advice: Ask for help.

I can’t tell you how many first time buyers I’ve worked with who have been in that position yet have been either absolutely terrified of asking for help or are adamantly opposed to it. When Lesley and I bought our first house we, too, were terrified. The thought of asking my parents for help was horrific! I wanted to prove something to them, after all, plus I was certain they would say no. I was wrong…both of our families turned out to be highly supportive and we couldn’t have done it without them. I had clients a couple of years ago whose entire immediate family raised $1.2 million in cash so it would be easier for them to compete in a multiple offer frenzied environment. After they bought they refinanced and paid the family back. I had a client who is the pastor of a church whose congregation raised money for their down payment so they could buy a home, and I also had some clients who casually mentioned to a group of friends at dinner one night that they were considering moving out of the Bay Area so that they could buy a house…and discovered that a few weeks later their friends had formed an investment group who put in $350,000 so that this family could buy and stay here. All this because somebody asked for help. I’ve also seen clients that I worked with 10 years ago, when the median price of a single family house in Foster City was $500,000, continue to rent to this day because they refused adamantly to ask family for help…it wasn’t that they asked and were rejected, they just wouldn’t ask. I don’t know why I was so uncomfortable with the thought of asking my family for help with our down payment…I really look forward to the day when my daughters come to me and ask for assistance. What a privilege it will be to help them!

Comments

  1. I am a former Bay Area native myself, so I empathize with those struggling to come up with a down payment. We’re back to the days of creative financing. And when I say creative I don’t mean underhanded, I just mean looking at different ways to get what we want.

    And yes the lenders have become hyper conservative in their lending practices. I recently had buyer clients of mine who were putting 25% down on a short sale home priced at $567,500. These folks had 700 credit scores, and earned nearly $200k combined and the bank rejected them because of a few glitches on their credit record dating back to 2003 caused by a business failure. This was virtually a risk free loan for the bank as the auction price of the home was going to be $498k. With a loan amount of $417k even if my clients did not make single payment after moving in the bank would have been able to recoup virtually all of the loan and any associated costs of foreclosure. It’s really getting ridiculous out there.

  2. No question, common sense seems to have gone right out the window when it comes to some of the decisions alot of these lenders are making, huh? Good luck to in Arizona! Thanks for the comment!

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