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The impact of down payment money

The impact of down payment money

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.

About Stephen L.

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Stephen is a 2008 graduate of Sam Houston State University with a BBA in Banking and Financial Institution. He received his MBA from Walden University in August 2014 with an emphasis on Risk Management. He has worked for the top lenders including JPMorgan Chase, Wells Fargo, and USAA, and is currently working as the CEO of MAH in Dallas, TX. Stephen has held several positions in the industry from Underwriter to Assistant Vice President of Underwriting, reporting to the Vice President of mortgage operations. With a broad history and experience covering topics from underwriting to loan servicing, he has a keen understanding of the intricacies of the industry and its ever-changing landscape.

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