Home Buyer's Recession Survival Guide - The Magic Of A Down Payment

The average price for a house in Jupiter Island, Florida is a jaw-dropping $5.6 million. Therefore if you wanted to pay a conventional down payment of 20% you would have to present the seller with a cashier's check for $1,120,000. And that wouldn't include closing costs.

Few of us have that kind of cash lying around, so we are stuck with somewhat more affordable houses in areas that aren't quite as rarefied as Jupiter Island. However, when we are mortgage shopping we have to realize that the down payment is the single most important factor affecting each and every aspect of that mortgage.

A complete deadbeat with a FICO credit score of 380, judgements, liens, collections, charge-offs and a couple of felonies on their record can walk into virtually any mortgage company in the country and walk out with a huge mortgage loan... that covers 65% of the total appraised value of the home. The other 35% they would have had to come up with in cash. When you can reach that level of down payment, investors really don't even care who or what you are. If you never make a single payment and they have to foreclose, they're perfectly happy as unless there is a Depression-level devaluation of the entire economy, they are going to actually make money on the deal! Look at it this way. When you have 35% equity, your lender wants you to default!

For most of us, 20% is the magic number. If we can come up with 1/5th of the entire purchase price of the property up front in cash, we will find that the vast majority of doors are opened to us, facilitating us in securing the mortgage we want, at the reasonable rates we are comfortable in paying.

Although 20% was a fairly fixed benchmark for decades in the mortgage industry, these days with the proliferation of Zero Money Down High Ratio mortgages going into default and foreclosure, many lenders will look favorably on almost any loan application presented to them which includes 15% and larger down payment. Investors feel that is more than enough cushion to take care of any potential foreclosure risks.

When you head into single figures, you're beginning to navigate some very treacherous waters. Now you're in that shadowy world of the High Ratio mortgage, and although it does not rule out your possibility of securing your loan, you will definitely have to jump through more flaming hoops and pay a lot more in interest to offset the risk.

It makes perfect sense that you should accumulate as high a down payment as you possibly can before you go house shopping. If you simply don't have that type of cash available to you, have you considered:

- Closing out your Checking, Savings, & Money Market Accounts
- Liquidating your Stocks, Bonds, Mutual Funds, etc.
- Selling your Personal Property (cars, boats, electronics, jewelery...)
- Emptying your 401K or Retirement Accounts
- Getting Rid of your Savings Bonds
- Borrowing to Come up with your Down Payment
- Obtaining Gifts from Family Members
- Asking for Help from Employers in the Form of Advances, Bonuses, etc.

If none of those work in your case, you might want to weigh the advantages of putting off that house purchase until you can scrimp and save up enough money to account for a signficant down payment. You might find in the long run that it might just be the best decision you've ever made.

Read The Entire Survival Guide

Home Buyer's Recession Survival Guide - The Subprime Meltdown
Home Buyer's Recession Survival Guide - The Advantage Of Renting Over Buying
Home Buyer's Recession Survival Guide - Why Rent? Why Not?
Home Buyer's Recession Survival Guide - Five Common Mistakes House Buyers Make
Home Buyer's Recession Survival Guide - Get Your Home Sold Quickly & At Your Asking Price
Home Buyer's Recession Survival Guide - Improve Your Home's Value And Sell It For More!
Home Buyer's Recession Survival Guide - Learn The Value Of Curb Appeal
Home Buyer's Recession Survival Guide - Home Staging: Valid Selling Technique Or Fraud?
Home Buyer's Recession Survival Guide - Before You Go House Shopping
Home Buyer's Recession Survival Guide - The Home Condition Checklist
Home Buyer's Recession Survival Guide - Getting A Mortgage From Different Types Of Lenders
Home Buyer's Recession Survival Guide - What To Do After You're Turned Down
Home Buyer's Recession Survival Guide - New Initiatives To Help Get You Approved
Home Buyer's Recession Survival Guide - Isn't HUD An Old Paul Newman Movie?
Home Buyer's Recession Survival Guide - Jumbo Isn't As Huge As He Once Was
Home Buyer's Recession Survival Guide - FHA Q&A
Home Buyer's Recession Survival Guide - The FHA's Credit Requirements Vs. The Bank's
Home Buyer's Recession Survival Guide - Your Credit Score And Your Mortgage
Home Buyer's Recession Survival Guide - Credit Score Confusion
Home Buyer's Recession Survival Guide - Keeping That Credit Score Nice & High
Home Buyer's Recession Survival Guide - Minimize The Interest Payable
Home Buyer's Recession Survival Guide - What Is PMI & Why Do I Care?
Home Buyer's Recession Survival Guide - The LIBOR-COFI-COSI Alphabet Soup
Home Buyer's Recession Survival Guide - REO: Get Rich Quick Or Just Waste Time?
Home Buyer's Recession Survival Guide - Obtaining Flipping Money
Home Buyer's Recession Survival Guide - Consider The Additional Costs
Home Buyer's Recession Survival Guide - What Is Escrow?
Home Buyer's Recession Survival Guide - Tips To Avoid Foreclosure
Home Buyer's Recession Survival Guide - The Changing Value Of Your Mortgage Dollar
Home Buyer's Recession Survival Guide - How To Ride The Interest Rate Spikes
Home Buyer's Recession Survival Guide - Can't Get A Mortgage? What A PITI!
Home Buyer's Recession Survival Guide - Calculating Your Closing Costs
Home Buyer's Recession Survival Guide - Mortgage Broker or Mortgage Banker?
Home Buyer's Recession Survival Guide - The Magic Of A Down Payment
Home Buyer's Recession Survival Guide - A Refinance Checklist
Home Buyer's Recession Survival Guide - Refinancing With Bad Credit
Home Buyer's Recession Survival Guide - The Self-Employed Mortgage Maze
Home Buyer's Recession Survival Guide - VA Loans
Home Buyer's Recession Survival Guide - Offset & Reverse Mortgages
Home Buyer's Recession Survival Guide - The Reasons To Not Buy An Offshore Retirement House
Home Buyer's Recession Survival Guide - How To Pay Less Than $500 A Month
Home Buyer's Recession Survival Guide - Five Easy And Cheap Tips To Save Big $ On Energy

More by this Author


Comments

No comments yet.

    Sign in or sign up and post using a HubPages Network account.

    0 of 8192 characters used
    Post Comment

    No HTML is allowed in comments, but URLs will be hyperlinked. Comments are not for promoting your articles or other sites.


    Click to Rate This Article
    working