Soft Market Classification!

Swiftly and without notice the mortgage landscape is ever changing. The latest curve ball that could blindside a buyer just hours before closing and stop any qualified buyer in their quest to purchase a new home is the requirement for an additional 5% down payment. When could this happen? When lender receives a conventional appraisal classified with “soft market” conditions.

Most of metro Atlanta has now been tagged as a “SOFT MARKET” area. Declining purchase prices and over six months of inventory are but only two examples of what might show up on a conventional or jumbo appraisal. The result is that if a buyer is pursuing max financing and attempting to put as little down as possible, the appraisal (which usually is received only a few days before a 30 day close) could dictate the buyer must put an additional 5% down. Independent of the financial strength of the buyer, a purchaser could be required to put more money down only a couple of days or hours before closing.

Do not let this soft market shocker be a last second spoiler for your purchase transaction. As industry leaders and professionals we have to educate our buyers on the front end of the financing process. Buyers must know that if they are pursuing financing with the minimum amount down, they must be prepared to either put more money down or switch to FHA financing once the appraisal is received. Buyers in the jumbo market may not have the luxury of FHA being plan B.

Here is a quick scenario-

Buyer is putting 5% down on a sales price of $323,000 on a property in Metro Atlanta.

Buyer should know in first stages of financing conversation that based on appraisal the property could be subject to soft market classification.

Buyer could:

1. Pursue exception with lender and mortgage insurance company to still only put 5% down payment. Buyer must realize that 5% down for conventional financing is the exception not the rule and closing delays could be experienced as this attempt for exception is now in the hands of a mortgage insurance company
2. Buyer could put an additional 5% down and still go with conventional financing terms.
3. Buyer must understand 80/15/5 financing is about as hard to find as a dinosaur
4. Buyer to consider FHA financing

In the end FHA is usually the wisest choice numerically and emotionally. The fact that FHA usually has a higher rate tricks borrowers to thinking it is a bad choice but the numbers do not lie and buyer can put 3.5% down going FHA, the monthly mortgage insurance factor for max financing is about half with FHA vs. conventional. Even though the FHA rate is normally higher the buyer puts 1.5% less down, has a lower mortgage insurance payment and minimal difference in PITI. Emotionally there is less uncertainty going FHA which allows expectations to be managed and an overall smoother buying experience.