If you are buying a house in today’s frenetic Fremont real estate market you better bring some cash. Not all cash, of course, but more than you would have needed had you bought a couple of years ago. You could have bought in 2006 and obtained 100% financing. You will look long and hard, and likely without success, to find that kind of loan now. No…now you need a down payment. That should not be a surprise. What was a surprise to me was the pervasiveness of the no-money-down financing, coupled with ridiculously low qualifying requirements, that was so popular in the recent past. Ofcourse, I am conveniently ignoring those special government programs that always have offered no-money-down financing because they are limited as to who can qualify for them. i. e. VA loans.

Now there is an additional challenge. As Elaine Murphy Carlson, a RE/MAX agent who serves the Palos Verdes Peninsula and surrounding area has written so well, you may need more than you thought for a down payment. That extra 5% that the lender may suddenly require must be taken into account when you are making your purchase plans. Don’t be taken by surprise!

Why are lenders requiring more cash down? They are afraid that the equity in your new house—the lender’s collateral—will be eroded by a continued decline in overall property values. If there is a problem, they want some protection from having to foreclose on a house that has declined in value below the loan they provided to buy it. The lenders are moving back from taking too much loan risk (easily available loans to borrowers with no down payment, stated income, no asset or job verification, poor credit) to a more traditional balance of risk that is shared by the lender with the borrower. The lender’s risk is that the borrower cannot pay. The borrow’s risk is that, if they cannot pay, they will loose their collateral and their equity.

The reality is that if you are buying real estate in Emily’s Palos Verdes Peninsula area or in Fremont, Newark, Pleasanton, Union City, Livermore, Hayward, San Lorenzo, Sunol, Danville, San Ramon, Milpitas or any of the surrounding areas that I serve, get full pre-approved with a quality lender. Discuss the amount of down payment that you can afford, not only in the traditional sense, but in the context of the current market conditions in which your down payment amount may need to go up.