After falling out of grace following the housing crisis, low down payment mortgages are back with a different look.
Don’t look now, but low down payment mortgage loans are back—but not in the same way you remember them. Often pegged as the cause for the crash of the housing market in 2008, low down payment mortgages have made a controversial return to the mortgage industry through several well-respected lenders, causing many economists to publicly voice their opinions on either side. If you’re lost, or simply not sure why you should care, we get it. Here’s our thoughts on the matter to help you sift through all the information.
LOW DOWN PAYMENT MORTGAGES: A HISTORY
So what exactly are low down payment mortgages? When we say low, we mean REALLY low. Many lenders have been offering Conventional loans with as little as 3% down payments and some won’t even ask you for a down payment at all! That sounds like a good thing, right? Maybe. But in the years leading up to the housing market crash of 2008, a lot of these low or zero down payment loans were going to borrowers with spotty financial histories, as well as undocumented income and debt, and many of them defaulted. Lenders were more focused on closing loans than making sure the loans were good quality. This wasn’t the only cause for the crash, but a crash was bound to happen, and when it did, new regulations were introduced to prevent this type of debacle from ever happening again.
A DECADE LATER . . .
With low down payment loans gaining popularity in the market, many people are understandably skeptical about what this could mean. The main issue with the former version of low to no down payment loans was that they required very little to no documentation of financial history. The latest version of these loans is vastly different as applicants must demonstrate an ability to repay what’s owed, must have excellent credit histories and scores, and must provide every bit of documentation for income and assets.
That being said, there’s still an avenue for people to get into some trouble. Like we said earlier, part of what caused the failure of the housing market a decade ago was irresponsibility at the hands of the lenders. Lenders didn’t own the mortgage loans they were making for more than a couple of months, so they didn’t have much incentive to make sure their borrowers could pay. Unfortunately, not much has been done to address this issue within the industry, and lenders still have little to lose in the way of ownership when it comes to these low down payment mortgages.
COUNT ON CARDINAL
Even with the new wrinkles, low down payment mortgages can still be risky. That’s why we’re careful in our pre-approval process and our loan originators are skilled in what to look for in borrowers who have the ability to repay. If you’re looking for low down payment options, we offer VA loans with 0% down payments, Conventional loans with 3%, and FHA loans with 3.5% down, along with down payment assistance (DPA) programs in certain states!