ZERO DOWN PAYMENT FINANCING? Despite Its Scarcity, Some Still Find It, According to NAR Survey!
NATIONAL ASSOCIATION OF REALTORS - "23% OF ALL HOME BUYERS BOUGHT WITH 100% FINANCING WITHIN PAST YEAR"!
Today's headline seems impossible to believe, due to considerably-tightened loan underwriting standards, and the requirement for top FICO Credit Scores and higher down payment requirements for most everybody. But, for many, especially First Time Homebuyers, with no current property to sell, high-leverage financing seems to be available.
The National Association of Realtors interviewed 10,000 home buyers, who made their home purchases or sold their homes within twelve month period ending last June 30th, in its latest "Profile of Buyers and Sellers, 2008." Of the First Time Buyers segment, an astounding 34% of those surveys purchased with No Money Down. Among ALL buyers, nearly one-quarter bought with 100% Financing.
Which Zero-Down Financing Programs still exist?
From lenders we use locally - very few! FHA-Backed Loans require a minimum 2.5% down these days - but down payment funds here can come from gifts from family members. For some loans, the buyer and seller can negotiate sizable seller credits at closing, reducing the effective net down payment to zero, or even less than zero - with the seller credit also covering 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 Chicago, these days, it is often difficult to get a sold house to appraise for its actual sales price - 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. Here, the deal may die.
It is true that the proportion of buyers with no-money-down loans are a shrinking percentage of the home loan pie (in the last NAR Survey, in 2007, a whopping 45% of first-timers purchased with 100% loans, according to Paul Bishop, the NAR Managing Director of Research. However, the current number of zero-down buyers exceeding 1/3 of the buyer universe remains astounding.
Keep in mind, he continued, that were the NAR Survey to include those who purchased after July 1st 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% loans.
Compiled NAR Data, through June 30, 2008, shows the median amount financed by all purchasers stands at 91% - not quite the minimum 20% financing many buyers are faced with today, but still surprisingly high.
First Time Homebuyers made up 41% of all transactions in the latest survey, up from 39% between July, 2007 and June, 2007, and 36% in the 2005-2006 National Association of Realtors Survey.
Read Mary Umberger's column in the November 30th edition of the Chicago Tribune for more NAR Summary Data.
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