I was unsure of the need for yet another Real Estate Blog but I assured myself, as I had when I first considered a blog, that if you have something relevant to say and are sure someone will find it useful, you are nearly obliged to share it; so, I have come across some information that inspired me to communicate my feeling to the masses, in fact, it made me cringe. I do hope you find it helpful.

A Down Payment Anomaly http://www.nytimes.com/2009/09/06/realestate/06mort.html?_r=4a link to an article from the N. Y. Times which purports to offer advice to John Q. Public that you may be better off putting a lesser down payment than the 20% traditionally recognized by Lenders as the premium amount to garner better interest rates. I have never known this to be true during my 35 years in real estate and related industries. I have polled quite a number of my contemporaries who agreed that there are some majors flaws in this ideology. I must state that since no restrictive language pertaining to New York or New Jersey property is cited in the article, the author must be speaking in a general manner about real property throughout the United States and the associated rules for Fannie Mae and Freddie Mac. No one that I know in the Mortgage Business is aware of any guidelines that establish scenarios that might lead to less favorable rates for putting a down payment of 20 % to 25% of the offer. In a time wherein the entire industry, let alone Country, is reeling from low down payment deal failures, the statement “For most people, it turns out, smaller down payments result in lower interest rates" seems incomprehensible.

The statement that “Oddly, those people who put down 25%...were saddled with a higher interest rate..." and "The underwriting rules from Fannie Mae and Freddie Mac consider borrowers in the 20 to 25% down payment category to be the riskiest, in part because they are not required to carry private mortgage insurance…" Whoever would think that a borrower(s) with a large down payment who could avoid paying Private Mortgage Insurance 'PMI' would get a less preferential interest rate than the next borrower(s) who couldn’t put up the extra down payment but had to pay extra for PMI, might be the person who advised that borrower with the large down payment to buy PMI and get a better interest rate... “Holy Horse Feathers, Batman!” Additionally, if “in part because they are not required to carry private mortgage insurance” was part of the reason for being riskier, what was the balance of the reasoning? The article also mentions that PMI is tax deductible without discussing the restrictive nature of the deductibility.

For me, the most interesting things about this article were 1) it did not discuss investing the difference in the down payment over loan term; 2) it did not suggest that an attorney, CPA or Financial Consultant be employed; and 3) after all was said and done, cited a quote from the Mortgage professional that they still advise borrowers to make a down payment as large as they can. Yikes!

This state, that state or mis-state, remember that you should always consult a Real Estate Professional for the right advice or proper referrals to get you the information that is up to date and appropriate in your state. A good Realtor can do this for you – Referrals to no less than 3 qualified, reliable parties should be given to allow the consumer to elect the most suitable professional in the particular category of interest.

For Desert Real Estate or general musings, you can follow on Twitter@RogerASullivan and the website is http://RogerASullivan.mywindermere.com Keep the faith!