Financing a Home in a Down Economy

This might seem a bit difficult to understand, but according to the National Association of Realtors '2008 Profile of Home Buyers and Sellers' — based on data compiled through responses from 10,000 home buyers and sellers through last June — there was still a sizable percentage of home buyers purchasing with NO MONEY DOWN!

While the NAR survey indicates that the median down payment paid out by people buying a home through the middle of 2008 was 9 percent of the purchase price, and fewer people found loans requiring zero down payment, among all types of buyers, 23 percent were still able to purchase with no down payment before June 30 of this year. For first-time homebuyers, high-leverage financing seems to be even more available. Of the first-time buyers segment, an astounding 34 percent of those surveys purchased with no-money down — a drop from 45 percent in 2007.

Zero-Down Financing Programs that still exist
I know what you're thinking. Does zero-down financing still exist? Here in Chicago there are still a few! But the closest thing to a zero-down these days is a FHA-backed loan requiring a minimum 2.5 percent down payment. For some loans, the buyer and seller can negotiate sizable seller credits at closing, reducing the effective net down payment to zero — the seller credit can also cover closing costs in some cases.

One thorny issue involving seller credits toward closing costs on high-leverage loans involves the requirement of an appraisal for a minimum of the total sales price — INCLUDING ANY NEGOTIATED CREDITS. Here in the Chicago market these days, it is often difficult to get a house to appraise for its actual sale price — even before any seller credits! If the house doesn't properly appraise, the buyer has to come up with any appraised shortfall — which many zero-down-payment borrowers simply do not have. In cases like this, the deal may die.

It is true that the number of buyers with no-money down loans are a shrinking percentage of the home loan, but the current number of zero-down buyers exceeding 1/3 of the buyer universe remains astounding.

Keep in mind that if the NAR survey were to have included those who purchased after July of this year, the zero-downers may have fallen in proportion, as ever-tightening credit brought on by several major Wall Street firms may have halted some of these 100-percent-finance loans.

Visit DEAN & DEAN'S TEAM CHICAGO at BlogChicagoHomes.com.

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