The Hurdle of a 5% Down Payment

The Hurdle of a 5% Down Payment

There’s much talk lately about the financial “crisis” affecting a borrowers ability to secure financing on a home purchase. I’ll help you debunk this line of thinking, and I’ll do it for free. Banks are indeed tightening up their lending requirements. Heck, they have to after the losses that many of them are sustaining. Local banks, including Anchor Bank, Midamerica Bank, Walworth State Bank, M&I Bank, First Banking Center, and others, haven’t been bit by the foreclosure bug that many larger companies have been bitten by. In fact, most local banks, even the larger ones, will tell you that they’re more than happy to lend money in this market. It’s a double edges sword for lenders. They’ve lost money by making bad loans, but they can’t make up those losses without generating revenue the only way they know how. By writing more loans. See, you can still borrow money. And then CNN started in…

CNN had an article recently with the headline “Need a mortgage now? Bring lots of cash”. Come on CNN. Read the article for yourself here. They had me until they said that most borrowers will need to come up with a substantial down payment. How much is substantial you ask? 5% in most markets! Not 5%!! I’m mocking them. In vacation markets, we’re used to seeing 20% down payments for loans on vacation homes. The main difference in lending practices today versus two years ago is that you can no longer finance 100% of the purchase price with 80/20 packages. So you can’t sit at the closing table and receive a first mortgage for 80% of the purchase price, and then sign a second mortgage for the remaining 20%. With 5% down payments, even on primary homes, you still have to pay PMI (private mortgage insurance), so it always makes the most sense to put 20% down if you can, whether it’s on a primary or a vacation home purchase.

Come up to the lake. Find a great deal on a great house or condo, and finance 80% of the purchase price while you’re at it.

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