The Low Down on Those Low Down Loans

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It seems lenders are finding that the new loan programs offering a minimum of only a 3% down payment aren’t attracting buyers and boosting homeownership among potential low to moderate income home buyers as everyone had hoped. (Low Down Loans) Why not?

Some think it’s because of a lack of information, education and understanding about the availability of these programs. Many still believe they need at least 10% or 20% to buy a home. But the new low down programs have been advertised and written up for months now. Why so few takers?

Although it may have something to do with down payment perceptions, maybe it has as much to do with reality. With home prices on the rise, and many homeowners again refinancing and staying put, could it be there just isn’t enough affordable housing out there for those in the low to moderate income bracket?

These potential home buyers not only have limited resources for their down payment, they are also limited in credit history and income potential. That means at higher home prices, with limited down payment, their ability to qualify for the mortgage needed is also challenged. This coupled with an uncertainty of employment and future earnings potential creates a fear of their ability to maintain the home.

These low down payment loans may assist those with current limited resources for the down payment money, but that have a good job and income, with a path toward increased earnings. However, these potential buyers may be put off by the high mortgage payments resulting from the minimum down payment. They may prefer to sit on the sidelines to see where rates and values go, while saving additional money for a higher down payment.

Low down payment loans are just one piece to the puzzle. Adequate affordable homes, decent employment with good income potential and a growing economy are also needed to help increase homeownership. To provide someone with a low down mortgage on a home they ultimately can’t afford doesn’t do anyone any good.

BTW, keep in mind that if the economy does improve, interest rates may rise, and that coupled with improving home values may make it difficult for first time home buyers to qualify for a low down payment loan. The key is an economy in which people can earn enough money to buy and own a home they desire.

It’s still the economy, stupid!

About the Author

Michael Vitali

Michael L. Vitali – Independent Consultant to the Mortgage Industry Mike Vitali is an independent consultant to the mortgage industry on matters concerning compliance and mortgage lending. He most recently served as the Senior Vice President and Chief Compliance Officer for LoanLogics, monitoring regulatory developments and their practical implications for the mortgage lending industry. His duties included research, interpretation, and analysis of existing and proposed legislation related to the industry in support of recommendations for policy and/or procedure changes to maintain continued quality and compliance with all applicable laws, rules and regulations, investor requirements, and standard mortgage practices. In his more than 40 years in the mortgage industry, in senior level management, he has gained experience in all areas of mortgage lending, risk management, and compliance. Mike is a past President of the MBA of Greater Philadelphia, is a charter member and was the second Chairman of the MBA of Pennsylvania, and a past board member and Legislative Chair of both associations. He is a recipient of the 1998 Mortgage Banker of the Year Award from the MBA of Greater Philadelphia, and the 2003 Chairman's Award from the MBA of PA, and currently serves on several compliance related task forces for MBA.