How many of your homebuyers have enough funds saved for a 30% down payment?
- 1 in 4 or fewer. (92%, 133 Votes)
- Around 1 in 3. (6%, 9 Votes)
- More than half. (2%, 3 Votes)
Total Voters: 145
After months of inactivity, we’re now drowning in qualified residential mortgage (QRM) definitions.
The initial QRM definition required a 20% down payment from homebuyers. That definition was successfully slain by the powerful lending lobby. The last proposed QRM definition, released in September 2013, removed the minimum down payment requirement altogether.
Now it’s back, with a vengeance.
This new QRM definition, dubbed QRM-Plus, calls for:
- 30% down payments;
- tougher credit standards; and
- no second loan or carryback at closing.
If homebuyers do not meet these minimum standards, they can expect to pay higher mortgage rates.
Public comments on this proposal are due by October 30, 2013.
Federal Register: Proposed Rule: Credit Risk Retention
first tuesday insight
first tuesday has long supported a 20% down payment requirement. But is 30% simply too much? (Why not 50%?)
20% is the historical norm. However, research is mixed on whether a minimum 20% down payment actually correlates to a lower rate of default and foreclosure.
Despite the conflicting studies, here’s all you need to know: a substantial down payment forces the homebuyer to have skin in the game. Money invested to establish equity deters mortgage default. The threat of the loss of equity is a strong impetus for making monthly payments.
On the other hand, zero down payment means the homeowner has nothing to lose if they stop making mortgage payments (aside from the scorn of the neighbors and a dinged credit history).
So, it makes sense that the higher the down payment, the less likely a mortgage default will occur. However, there is a balance to be struck between:
- allowing access to mortgage funds only to the wealthiest among us (a quickly shrinking class); and
- opening wide the gates to homeownership, regardless of any financial incentive to repay (a repeat of the Millennium Boom).
Not many are impressed by the proposed legislation. Only 18% of homebuyers who purchased in 2012 met the requirements of the proposed QRM-Plus, according to the ultra-conservative Mortgage Bankers Association of America. Further, this plan bars most minority and low- to moderate-income homebuyers from receiving the best rates.
Sure, they can always take out a Federal Housing Administration (FHA)-insured loan, but they will still be stuck paying not only higher interest rates, but expensive mortgage insurance premiums (MIP). The first-time homebuyer population is sure to feel a dramatic blow.
first tuesday favors a graduated introduction of a 20% down payment requirement. This is implemented over several years, beginning with a minimum 5% down payment the first year, rising to 20% over seven to ten years. This plan limits the impact to the housing market by phasing in the requirement (giving time for homebuyers’ savings expectations to catch up), while eventually improving the average homebuyer’s skin in the game to deter future defaults.
Re: Down payments may rise to 30 percent from The Washington Post