In another sign of the housing market's brightening outlook, more home buyers are discovering conventional loans with down payments well below the 20% or higher levels of recent years.
Until recently, many borrowers had to go through a government guaranteed loan program, such as the Federal Housing Administration (FHA) or the Department of Veterans Affairs, to get a mortgage with less than a 10% down payment.
Now, a growing number of lenders are offering such mortgages without the backing of a government guarantee -- the definition of a conventional loan.
Loans with down payments between 5% and 10% accounted for almost a fifth of the conventional loan offers that lenders made on the LendingTree online exchange in the first quarter, according to LendingTree.
That's up from just 6% of conventional loan offers in last year's first quarter and only 1% of the offers in 2011's first three months.
A similar trend shows up on the Zillow Mortgage Marketplace. The number of lenders quoting non-FHA loans with down payments of 5%-10% is almost double what it was two years ago, Zillow says.
That can be a big help. On a $200,000 mortgage, a 20% down payment is $40,000, but 5% is only $10,000.
"For years, it's been FHA or nothing," for the low-down-payment borrower, says Guy Cecala, publisher of Inside Mortgage Finance. "This shift is a sign that mortgage origination is loosening up."
The industry is still a long way from the easy-lending standards that caused the housing bust. Borrowers now must show a strong credit history and documented income to get loans.
While the FHA requires just 3.5% down, its annual insurance premiums have more than doubled in the past two years. The last increase took hold April 1.
The higher costs are "causing a shift back toward conventional loans," says Cameron Findlay, chief economist at Discover Home Loans.
He expects that to continue as FHA rules tighten, raising costs for borrowers.
Lenders generally don't make home loans that they can't resell to mortgage giants Fannie Mae or Freddie Mac.
While Fannie Mae will buy a loan with as little as 3% down, and Freddie Mac at 5%, loans with less than 20% down require borrowers to also pay for private mortgage insurance.
When the housing market crashed, the private mortgage industry lost billions and such insurance was tough to get. Now, that industry is recovering and the cost for private mortgage insurance has dropped for borrowers with higher credit scores.
More home borrowers are deciding it's better to pay for insurance instead of putting 20% down, says Matt Johnson, loan officer at Sterling Bank in Seattle.
READ FULL SOURCE ARTICLE: 04/14/2013
Editor's Note: Yup...let's make sure to blow-up that bubble again so we can repeat the same stupid financial mistakes of the past...
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