2022 Boise Idaho Real Estate Blog

Declining Markets / How Much Can You Borrow?

Main Boise Home Loans

Who really makes the decisions on mortgage programs and availability of credit for most mortgages? Will 100% purchase financing go away? Read on to learn more!

Interestingly enough, there was a time (you may or may not know or remember this) where a 50% down payment on a home purchase was the norm. How times have changed! In the years from 2004-2006, I personally saw 100% purchase mortgages that were structured on 80/20 combo deals that required no Private Mortgage Insurance...for people who had credit scores of at least 560!?!? Now, many lenders are moving to a minimum credit score of 680...these lenders fear additional mortgage delinquencies and defaults that could add to an already record number of foreclosures, and want to strengthen their mortgage portfolio.

Across the nation, there are many markets that Fannie Mae and Freddie Mac have tagged as "declining markets." What does this mean? Generally, if you want to purchase a home in a declining market, then even the best credit will only qualify for 5% less financing than the maximum allowable under Fannie and Freddie guidelines.

EXAMPLE: If you have an 800 credit score, significant liquid assets, steady employment, and acceptable debt-income ratios, you still would only qualify for 95% financing in a declining market. 5% down is not the end of the world...in fact, far from it. However, there is a perception among homebuyers that because of how hot the nation's housing market had been in the years leading up to 2007 (when things started changing) that 100% financing will always be around...don't bet on it.

I don't have a mortgage industry crystal ball, and I'm not here to make predictions. However, saving 5% to 10% for a down payment may be the absolute best thing you can do to help yourself in this housing market. Lender underwriting guidelines have gotten tighter, and loan applications and appraisals are being scrutinized more than ever before. However...one thing will never change in this country: CASH IS KING! Anytime you bring cash to the table in a mortgage, your application will absolutely be looked at more favorably.

For more information on the national housing market and value trends, please visit the Office of Federal Housing Enterprise Oversight's website at http://www.ofheo.gov/. This agency is who helps Fannie Mae and Freddie Mac determine if a market is declining, and therefore subject to the 5% fewer approvals on mortgage loans I talked about. On this website, check out the House Price Calculator at http://www.ofheo.gov/hpi.aspx. You can also search your city and find appreciation/depreciation trends.

Posted by Eric Leigh at 3/6/2008 3:58:00 PM

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