There are still 100% loans out there though they are few and far between. For most, the least downpayment you can bring is 3.5%. You can still have the sellers pay for your closing costs so you only need about $7,000 to buy a $200,000 home. I still see people stretching themselves to take this kind of loan on with little in cash reserves. And for all of the silly rules the banks have, they aren’t requiring six months or more of reserves while we are in uncertain times which is a general financial principle.
- I would propose that in three to five years that home loans must be no more than 95% of value.
- Five years after that home loans could only be 90% of appraised value.
- Every five years you would lower the cap by 5% until you stop at home loans limited to 20% of appraised vaule.
Maybe 20% is too much – 10% might cut it. But would people think twice before putting $20,000 down on a $200,000 dollar home whether they could make the payment? I imagine they would. The market would also slow down but homes would be linked closer to their value and not just what their payment is every month.
Would we be in the same economic shape now if buyers had to put down 10% or 20%? The zero down loans plus no-proof of income loans became a deadly cocktail that will leave us with a hangover for a long time to come. And while the bank is getting tough by having certain repairs done before closing it only goes to show that they are protecting their investment in the house in case the buyer defaults not trying to insure the buyer succeeds as a homeowner by requiring reasonable amount of cash reserves.
