While there are many people who want to buy a home, it’s hard to borrow money right now! Let’s take the example of a $400,000 home in Virginia Beach. A couple of years ago, you could buy one with no money down. To avoid paying PMI (private mortgage insurance) which is required when you borrow with less than 20% equity, buyers would take out a mortgage on 80% of the purchase price and a second mortgage on the remaining 20%. Banks will no longer lend this way because it is one of the reasons the housing crisis started in the first place.
Today when you want to buy a $400,000 home you will pay PMI (about $400/month) unless you put 20% down. For a conventional loan, you will have to put down at least 5% and you will have to have excellent credit and a good dept to income to ratio to have that option. The bottom line is that there are far few people who will qualify for a loan today than there were a few years ago.
Most potential buyers who have the $80,000 needed to put down on a $400,000 home are very hesitant to spend it. The stock market has dropped 40% in the last year and the opportunity cost of that money has never been higher.
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