Down payment on a home is one of the leading causes of denial in the underwriting process. It is the banks responsible to identify the funds available to close. And because an Loan-to-Value (LTV) of greater than 80% scares a lender some regulators are posing setting a maximum 70% LTV to qualify for qualified residential mortgages (QRM). Because of the down payment weighted factor, lenders are trying to mitigate the risk retentions. A 20% down payment is considered to have a higher risk tolerance for mortgage lending.
Having a sustainable sized down payment will help customers obtain the home of their choice to allow a 43% maximum debt-to-income ratio to be achieved based on CFPB QM standards. With the increase of goods and services in the economy and the stretch of a dollar, consumers are optimistic about meeting those expectations.
Considering the customer file is ran through an automated underwriting system to determine risk levels, having a sufficient underwriting file would not require the additional need of a lower LTV outside of normal. Lenders say it is about keeping skin in the game with 20% down for investors to package a safe mortgage to investors. However, is it more about protecting investor or protecting consumers? An LTV requirement is not a definition of QM and QM requirements alone are more than enough of a safeguard. The housing market has declined because of the lack of buyers willing and able to qualify for a home loan based on down payment and elimination of current debt obligations.