The process by which a mortgage is secured by a bank includes the borrower submitting loan applications and documentation relating to his financial background and credit history. All this is done to ensure Amortization is plausible for the borrower. Documentation and credit history are used to classify loans into high-quality or, subprime. They can also be classified by the amount of documentation down to the “no income, no job, no asset” loans known as “NINJA” which are high-risk loans. High-risks loans require higher down payments. However since the 2007 crisis, regulations tightened and the perception on down payments changed. Home buyers think they need from 11 to 15% down payments to qualify for financing, but in reality, according to Christina Boyle you can qualify with as little as 5% and sometimes even 3%. Nevertheless some experts think that to carry on with a sensible Amortization, the ideal down payment should be 20%. Boyle says that “letting more consumers know how down payments are determined could bring more qualified borrowers off the sidelines.” and that “depending on their credit history and other factors, many borrowers can expect to make a down payment of about 5 percent or 10 percent.” However, a 20 percent down payment is still optimal for Amortization purposes according to Forbes.
The financial crisis of 2007 arose mainly because unsound mortgage lending. Lightly regulated instruments based on mortgage-backed securities were the main root of the big crisis and to fix this, after the collapse, banks tightened lending policies. Consequently, the perception about the amount needed for a down payment changed among home buyers. Issuing securities on mortgages allowed the banks to rapidly relend the money to others and therefore to create more loans than the banks could create with the amount they had on deposits. Investors also made low-risk profits at a higher interest rate than they could from most other sources; the flow of money was fast but the problem was the low quality of loans – you could get a mortgage with a down payment of 0% and of course Amortization turned to be hard as well.
Lower down payments make the Amortization period longer and, the longer the Amortization takes the more interest you pay which will have an impact on your saving ability for example for retirement. Experts say constant costs from a fixed rate pose peace of mind and can make your Amortization regular. The final deal of the mortgage includes other costs such as application fees, attorney fees, title insurance, assessment fees, inspection, underwriting and others. Bankrate.com carried out a survey in 2010 and estimated that the average total closing cost on a $200,000 house was $3,741. These fees may sometimes be financed and added to the mortgage which will make Amortization tougher and raise the payback risk. If you choose a low down payment the Amortization period will be longer and interest will be higher too.