During 1997 through 2006, mortgage lenders created a variety of no money down type programs and “loan to own” mortgages which eliminated the strict requirements previously needed to get a mortgage. Individuals did not have to prove their ability to repay the mortgage or have sizeable downpayments during this period, and lenders like Bank of America, Wells Fargo and Citigroup lent millions of mortgages to people they knew had little chance of fully repaying them.

The original mortgage lending practices are returning, where borrowers are required to come up with a 20% minimum down payment to qualify. To contract the difference, in 2006 the average home down payment was 4% of the purchase price, while in 2010, across nine major United States cities the median down payment was 22%.

Lower down payments make it possible for more homeowners to get into homes, but it leaves them with costly mortgages they can’t afford and results in high numbers of foreclosures. Even individuals who have managed to avoid foreclosures through mortgage refinancing programs offered recently are experiencing long term financial distress – since they owe so much more than their homes are worth in today’s market.

If borrowers can’t come up with 20% or more for a down payment, they can look at loans backed by the Federal Housing Administration (FHA). Currently, these loans require 3.5% at closing, but come with private mortgage insurance expenses and higher than average interest payments. While it offers the opportunity to get into a home, the monthly payments will be higher.

Resource:

http://www.housingpredictor.com/2011/banks-want-more-money.html

Bank of America (NYSE: BAC), Wells Fargo (NYSE: WFC), Citigroup (NYSE: C) Penalties Likely to End “No Money Down” Programs was created by and is property of American Consumer News.

While most lenders will require a down payment in order to qualify for a loan, there are other advantages to putting down a payment towards the purchase of a house, namely that your monthly payments will be lower. It is also equity being put into the home upon closing the sale.

So how can you save the money you need for a down payment? Here are 5 ways you can come up with the cash to afford your new home.

Sell Something Valuable

Many people have a boat, second car, or collectible keepsakes that do nothing much more than collect dust. If the prospect of a new home is more enticing than the idea of your baseball card collection, sell the cards to the highest bidder and get ready to move.

Establish an Automatic Savings Plan

If your employer allows for direct deposit of payroll, sign up to have a percentage of each paycheck directly deposited into a savings account. If you do not see or have access to the extra cash, you won’t be tempted to spend it. Plus, it will help confirm your commitment to buying a house.

Explore Private or State-Sponsored Programs

Do your research about the different programs that specialize specifically in providing down payment money to purchase a house. Rules and regulations do apply and will vary but it may be a great alternative for people with no other options.

Approach Your Boss

If it is customary to receive bonuses at work and you feel comfortable speaking to your boss about personal information, ask if a bonus is coming your way in the near future. Explain your down payment situation. The worst they can tell you is no.

Get Back Your Loan

If you have ever leant money to a friend or relative, now is a good time to ask for it back. This may not be the best route to take but often people forget about a loan and are happy to repay it after a gentle reminder.

5 Ways to Save Cash for a Down Payment was created by and is property of American Consumer News.

1. Are your credit accounts current? If your accounts are not current now, then you are not making enough money to make your mortgage. Get those balances current before applying for a credit card.
   
2. Have all of your balances been paid on time within the last 12 months? Paying on time for 12 straight months will make you an “A-Paper” borrower, something lenders consider just as important as your score. If you are an “A-Paper” borrower, you will get bumped up to the better end of loans you credit score will qualify you for. Therefore, go 12 months with timely payments to give you that extra boost regardless of your score.
3. Do you have a lot of negatives on your credit report? Negatives are usually late payments, balances over their limits, and items charged off for collections. You can “dispute” these items on your credit report and have them removed, which will make you look more attractive in the application process and raise your score at the same time. (Plus it only takes 30 days to do.)
4. How many times have you applied for credit in the last three to six months? Too many credit inquiries lowers your score and says you are trying to get yourself into a heap of debt. Try to make it through three to six months without applying for new credit before applying for a home loan.
5. How much money do you have to pay towards other credit on a monthly basis? A creditor will figure your mortgage at approximately 50% of what you make. This number varies depending on the lender. Your credit report totals all of your payments right up front. If you are paying more then 50% towards credit cards and other loans, then you will most likely be rejected for a mortgage. Ask your creditors to lower your interest rates so that the total monthly payments on your credit report will go down. Also, try to pay down as much of your credit balances as possible so that you can get a higher pre-approved mortgage amount.
6. How much longer will you be paying your car loan? If you have a car loan, and you only have one year’s worth of payments left, mortgage lenders will usually not take that debt into account when calculating your potential mortgage amount. Therefore, if you have more then one year of payments left, pay it down to one year in order to get a higher mortgage.

Remember, knowledge is power. A pre-approval letter is knowledge and it gives you bargaining power when it comes to home loans. By cleaning your credit before applying for a mortgage, you can bargain for the best loans and make the toughest home offers. Do these things before applying for a loan, and soon you will own the home of your dreams.

What Mortgage Lenders Look For was created by and is property of American Consumer News.