Obviously a banker was not involved when a bright thoughtful genius came up with no money down mortgage loans. Even the safest of mortgages backed by the FHA require a 3% down payment and limits on the maximum you can get based on a variety of factors including average home prices in your target area, and resale values. The down payment had been in place to show that the borrowers had at least some sense of fiscal responsibility when purchasing a home. By not requiring a down payment mortgage originators were just about assuring that their default rate would double or triple in a few years time.
A down payment at the very least ensures that their will be a small amount of equity for the borrower as long as real estate values are not in decline. It also allows the borrower to buy a bit more house than they could actually afford. Ideally, the borrower would want to be able to purchase a house for less than 80% of it’s appraised value to avoid the Private Mortgage Insurance required by most lenders for approval. In addition, the borrower has to take into consideration what local taxes are required based on the property and how they will be handled to avoid tax problems and possible liens.
