Dave,
I occasionally see houses that are advertised as “no money down.” Isn’t this what got us in trouble, when the housing bubble occurred? How are they doing $0 down loans again and why would we go back to the same loans that sank the economy back in 2010? I must admit that I am surprised to see this, as I thought we had learned our lesson, but clearly we might have to learn it the hard way!
John, Grand Junction
John,
Great question and one that I am sure many people have when they see these types of advertisements. It HAS become more difficult for many buyers to get a loan (at least as compared to 2007), but in my opinion the “firming” up of lending practices was needed and only significantly impacts those who might be labeled as “marginal” buyers. Lending from 2002-2008 was too lenient, which was a big part of what led to the housing bubble, and now we have returned to much stricter guideline practices, especially for those potential buyers who may be on the fence and not completely credit worthy. You must have good credit, good payment history, good work history and believe it or not, at least 3 ½ % down for most loans that are not VA (loans through the Veterans Administration) or RD loans (Rural housing and development). If you meet fulfill these criteria, there are many avenues to lending and purchasing a new home!!
It is my bet you are seeing homes advertised that are classified as Rural Development eligible. Rural Development is a loan program that is meant to encourage potential home buyers to consider more rural areas to promote growth in those areas. (i.e. Fruita and East of 32 Road) Rural development has recently expanded the areas that qualify for these no money down loans and I bet you may have seen signs in one of the areas that is eligible. Rural Development loans are very desirable to potential buyers because you can purchase in these areas with NO money down. You can get a rundown of the new map from any local lender, as these loans are very popular in our area.
I would agree with you that, on the surface, loans of this type appeared to be at the root of the housing crisis, but the major difference is, these RD loans are designed to promote growth in designated areas and to promote the growth, buyers are enticed by the zero down option. Remember, the down payment requirement is less, but the other criteria of good credit, good payment history and good work history are still part of the equation. These loans historically may have a higher default rate, but with the tightening of the overall lending standards I believe these types of loans will now fall in line with more conventional lending options.
In summary, what led us down the housing crisis and impending disaster was not just the no down payment loans, but no documentation (referred to as no-doc or sub-prime) loans and the adjustable rate mortgages. The Adjustable rate mortgages were very enticing as the low interest rates in the first 5 years was very attractive, but what many found was they quickly ballooned out of control. There was a time, not very long ago, that verification of income was not always required to obtain a loan etc... When you DO NOT have to verify your income to obtain a loan, trouble is, as we found out, just around the corner. At today’s interest rates, you can bet that lenders are going to remain somewhat cautious, however if interest rates ever go up (above 6%) we might just see some riskier lending practices return. With interest rates right around 4% virtually any significant risks outweigh the gains. As interest rates go up, easier money availability will increase, but hopefully only trending towards barrowers who have good credit, good payment history, good work history and some skin ($) in the game. I am confident we will continue to see that there are some solid checks and balances. Hope this answers your question.
Dave Kimbrough,
The Kimbrough Team
