Will 20% Be The New Minimum Down Payment Required On a Home Purchase?

Will 20% Soon Be the Minimum Down Payment?

Several government agencies are reviewing data to determine what will be the minimum down payment required under the new Qualified Residential Mortgage (QRM) guidelines scheduled to be revealed in the next few months. The effects on Tenafly and Bergen County’s buyer’s buyer’s ability to purchase remains to be seen.

The so-called Qualified Mortgage rule issued by the CFPB Jan. 10, weighing in at 804 pages, requires lenders to verify borrowers’ ability to repay their loans and offers legal safe harbor for lenders who follow guidelines for safe mortgages.

Down payment size “is the major credit-risk driver in mortgages that was untouched by the QM rule,” Karen Shaw Petrou, managing partner of Federal Financial Analytics in Washington, said in an interview.

Defining safe loans as those with a 10 percent down payment, instead of 20 percent, “is the politically expedient course to take,” Petrou said.

In the original Mortgage Market Note issued by the FHFA, it was suggested that loan-to-value (the percentage of the overall purchase price which was being borrowed) was a major factor in determining if a loan would default:

“An LTV ratio qualified residential mortgage must meet a minimum LTV ratio that varies according to the purpose for which the mortgage was originated. Forhome purchase mortgages, rate and term refinances, and cash-out refinances, the LTV ratios are 80, 75, and 70 percent, respectively.”

read the full report on www.Bloomberg.com