PARAMOUNT MORTGAGE - LENDER'S BLOG

As reported by Les Christie, CNNMoney.com

As mortgage lending rules continue to change, we take another look at part two of reporter Les Christie's CNNMoney.com online article exploring the new options available to borrowers. Part one is online here if you missed it last week.

Making more than the minimum down payment

If you can afford to put 25%, 30% or more as a down payment, should you do it?

Today, we've come full circle to where a standard loan is in reality a conforming loan and the required minimum down payment is 20%. If a buyer could afford to put more than 20% down, it was generally assumed that they should.

The traditional thinking was, "If you have the capital to commit, why not?" said Keith Gumbinger of mortgage research firm HSH Associates. "It will give you a smaller balance to pay off."  In light of the declining home markets, not everyone would agree with that strategy.

High down payments can be wiped out in severely declining markets.

Take the example of an Arizona couple who put $400,000 down on a million dollar house. They assumed a larger down payment would provide a nice home equity cushion should they run into financial trouble.

But in a falling home market "prices are down so much, the couple still fell underwater," stated Gibran Nicholas, founder of the CMPS Institute. It would have been better to have conserved the extra down payment cash for an emergency if they might need it.

Locking in the mortgage rate

Many borrowers choose not to lock in when they see falling interest rates. They assume that the deals will only get better. But that's often a mistake.

"We almost always recommend that if you have the numbers that make your deal work, then lock it in," said Gumbinger. Attempting to time the market bottom is a fool's folly. Most professionals cannot predict the bottom and your chances of doing so are not much better.

His reasoning: Interest rates tend to jump up much faster than they inch down, meaning that buyers are much more likely to get stuck with a higher mortgage rate than they are to get a lower one if they opt to wait. Locking at these current historically low interest rates can give you piece of mind during the high stress endeavor of buying a house.