Mortgage has been identified as a popular mode of gaining ownership of a house or property whereby timely principle repayments and interest payments result in the transfer of ownership at the end of the mortgage period. Mortgage usually involves payment of an initial deposit at the start of the contract which due to recessionary phase has been significantly increased by the banks making it difficult for potential property owners to get a mortgage.
Credit Crunch 2008
The credit crunch that hit the American financial institutions in 2008 ultimately led to the crash of mortgage market whereby the dream of Americans to home their own home rapidly evaporated. It was held that the credit crunch arose as a result of weak mortgage policy used by the financial institutions whereby the banks failed to take into account credit history of customers. This ultimately led to large scale defaults that resulted in the house market to crash as the supply of real estate rose rapidly. The recession that soon hit USA is now on its road to recovery and real estate market is now stabilizing albeit at a slow rate.
Conditions for Getting a Mortgage
The credit crunch has resulted in stricter terms and conditions to be adopted by the financial institutions and they have now significantly increased the percentage of down payment required. Furthermore, banks now grant mortgages to those that have an excellent credit history and low probability of default. Although the recovery of housing market has resulted in an increase in demand for real estate, the initial deposit required poses a hindrance in obtaining a mortgage.
Financing a Down Payment
There are different ways through which a person can arrange money for making a down payment such as savings and retirement accounts. A person is likely to have savings in form of current account or emergency account or retirement account and this money can be invested towards making a down payment. Furthermore, a person can also borrow from friends and family with an agreement to return the money in the foreseeable future. Conversely, a person might have certain investments in term of shares or mutual funds and these can be withdrawn to finance the down payment. A person can combine funds from various sources to make a down payment. However, realizing investments should not harm or deteriorate a person’s financial position and the benefits of gaining a mortgage must be contrasted to the costs of realizing an investment.
Guest post by Sean Oakes. Oakes is a real estate columnist and frequent guest blogger. He writes about real estate, money management, and topics like Money Mutual for established financial and news sites.