Down Payments

At the very heart of the mortgage debate are down payment rules and regulations. Experts agree that a full-blown U.S. real estate housing market recovery is unlikely, especially considering government regulators cannot determine the minimum down payment amount required by borrowers.

Experts agree that the day and age of 100-percent financing was a major contributor to the economic housing bubble burst. In fact, experts also agree that homeowners that are required to put a minimum down payment on a house actually have a lower likelihood of defaulting on their mortgage loans.

For example, if a home cost $100,000 and a borrower was required to put a 20-percent down payment towards the principle, the home loan would be $80,000. Having this loan-to-value ratio immediately gives the homeowner equity in his/her home, which is essential for emergency-selling situations, such as being relocated for a job or a medical crisis.

Advocates against required down payments cite that having a higher value-to-loan ratio would, in fact, limit lower income consumers from purchasing a house. These advocates believe that the government should impose other curbed lending rules to accommodate lower income families that cannot afford a substantial down payment.

Regulations that took effect in 2013 require banks to assess each borrower’s overall debt to income ratio, with debt payments not permitted to exceed 43-percent of personal income.

However, proponents of the down payment regulations highlight statistics that show that homeowners who contribute a down payment have a far less chance of going through a short sale or foreclosure in the future. Many banks, overly inundated with foreclosures, are simply looking to decrease their inventory and prevent further foreclosures from destroying consumer credit and flooding the market. Many banking advocates agree that down payment regulations are necessary to help boost the economy and make homeowners responsible for their home purchases.

Advocates for lower down payment options say that the debt-to-income ratio plays no role in determining foreclosure statistics, and while they agree that those borrowers who make a down payment towards the home are at a slight less risk of defaulting; however, they believe the statistics are simply too close to compare.

While the government is trying to impose regulations to help banks from going bust if the economy should ever burst again, finding a happy medium between the banking industry and consumers is a delicate line, one that politicians are attempting to address before our country can move forward.

Better Than Loans offers an alternative to traditional bank loans. As a hard money lender they offer fast loan funding, including bridge loans, for a number of real estate projects.