WTF?! Just when you think you have scrimped and saved enough and that you are finally a candidate for a home purchase, they change the rules.
A few months ago, you needed 5% down and you were good to go. Now, you needed 10% plus 6 months worth of mortgage payments sitting in your bank. That’s just for a conforming loan ($417K or below). For a non-conforming loan, you need to put down at least 15%. All this while we hear of breaks to help the idiots who bought houses they knew dang well they couldn’t afford. So, they get to keep their mansion and you get to keep your apartment.
As the carrot begins to feel like it’s attached to a wire and string tied to your own head.
I ask Mr. Developer, “WTF?!”
Mr. Developer: “The hike in the required down payment percentage stems from cuts in appraisal values.”
BIG AL, THE GAL: “Say wha?”
MR. DEVELOPER: “For easy math, let’s pretend you decide to buy a home for $100K.”
BATG: “Dream on! I wish. Sheesh! Wouldn’t that be nice!”
MR. DEVELOPER: “Please try to focus.”
BATG: “Ahem. Right.”
MR. DEVELOPER: “In this scenario, you are prepared to put 5% of the price down and will need the other 95% from the bank. The bank sends an appraiser who appraises your new home at $100K.”
BATG: “That’s good right?”
MR. DEVELOPER: “Sure, but the lender then reduces the appraised value of the home by 5%. So, your $95K loan becomes 100% of the new appraised value. You’ll need to put 5% MORE down.”
BATG: “What?!?! Can they do that? Is that legal??? That sounds like something they’d pull in China! Outrageous!!”
MR. DEVELOPER: “You’re spitting on me.”
BATG: “Oh, pardon me.”
MR. DEVELOPER: “The market is declining and lending institutions are factoring a down market into their appraisals. In other words, they are trying to factor future price declines into today’s appraisals.”
BATG: “Do they know something we don’t know or are they just big stinkin’ jerks?”
MR. DEVELOPER: “They know just what we know: sales are sliding and prices are coming down. Times are tough for lenders. They must move forward cautiously.
“Loans above $417K are tough to get off their books because fewer investors exist to buy the loans. So, lenders find comfort in requiring the buyer to put more money down.
“The higher down payment reduces lender risk in two ways. First, they are loaning less money. Second, there is a greater chance the buyer can afford the home if they are able to put down 10% and have six months worth of mortgage payments available.”
BATG: “I would like to go on record as saying I think the whole thing makes me puke. Are you the proper official with whom I should lodge this complaint?”
MR. DEVELOPER: “Sure, complain to me if it makes you feel better.”
BATG: “All right, then I will! Furthermore—”
MR. DEVELOPER: “Would ya look at the time! I’ve gotta run.”
Image thanks to garethjmsaunders on flickr.
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1 response so far ↓
1 T1 // Feb 18, 2008 at 4:15 pm
Who has 15% down these days? Looks like sales will continue to be slow w/ those kind of hurdles.
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