Categorized | Finance and Mortgage

New Proposed Home Lending Standards May Require 20% Down

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Call it a blast from the past, but for future homebuyers, a required 20% down payment may very well be a reality.

In an effort to improve the housing market, regulators have decided upon a number of lending rules that they think should be put in place. Included in these rules is one that would require potential homebuyers to put 20% down in order to secure a qualified mortgage loan. However, both Democrats and Republicans alike believe that this rule will further cripple the housing market to a point of no return. It would create an atmosphere in which qualified loans are unattainable, and as such, home sales will most certainly decline at record rates.

The rule has surfaced as one of many proposed by regulators as a result of the Dodd-Frank Wall Street Reform Act. The standards would require a 20% down payment in order to receive a loan with a desirable interest rate. Prospective homebuyers could still receive a loan if they put down less than 20%, but they would be faced with significantly higher interest rates.

Essentially, this proposed plan divides home loans into two categories that target two distinct audiences. The first category would pertain to those buyers that are able to afford a 20% down payment. With the higher down payment, lenders face less regulatory obstacles in selling the loans, making lower interest rates possible.

The second category is those homebuyers that cannot afford the 20% down payment. They may still be able to secure a loan, though the lenders would face greater restrictions and risks, which leads many to believe that such borrowers would face much higher interest rates.

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About Drew Wilson

Drew focuses on the Commercial and Mortgage/Finance categories.

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