The American dream is alive and well—it just looks a little different from decades past.
Much of this, of course, is due to the recent housing market crash.
It was only about five years ago that the subprime mortgage crisis pulled the carpet out from under Americans’ feet—both literally, as many people lost their homes to foreclosure, and proverbially, since the crisis caused property values to plummet within a few short years.
That said, the next generation of would-be homeowners hasn’t lost faith: A recent survey by Zillow found that 54% of young adult renters plan to buy a house within the next two years—with 65% saying that owning a home is necessary for achieving “the good life.”
But while the values of those polled may be traditional, how they go about buying a home in 2015 and beyond won’t be.
Since the recession, the rules of the game have changed, affecting how buyers, sellers and lenders have approached the process, according to Brendon DeSimone, author of “Next Generation Real Estate: New Rules for Smarter Home Buying & Faster Selling.”
His big-picture observation? Things are mostly on the up-and-up for house hunters.
A few years ago, when people wondered what they needed to buy a house, the answer usually consisted of perfect credit and a rich relative who could plop down cash for a down payment. But as credit standards loosen and competition dies down, would-be buyers are getting more opportunities now than they have in the past.
To help us better understand how the environment has changed since the housing meltdown, we looked at some of the home-buying realities of years past—and then asked DeSimone for his thoughts on how things have changed and what it really takes to achieve the homeownership dream today.
Home-Buying Trend #1: Low Down Payments Are Back
That Was Then … In the last few years, most borrowers had to put at least 20% down, since mortgage lenders, still reeling from the subprime crisis, were under government pressure to tighten restrictions.
This Is Now … Lenders are now more willing to say yes to single-digit down payments. Case in point: Fannie Mae and Freddie Mac, the government-sponsored mortgage giants, recently publicized the introduction of a new lending option for first-time homeowners that allows them to put down as little as 3%.
What DeSimone Says … Before 2008, low down-payment loans were easy to get. But when the market crashed, it became hard to get a loan, and lenders were extremely stringent. People were getting rejected at the eleventh hour all the time.
These days, I’ve been noticing that banks have been advertising a bit more, and people are starting to realize that lenders are back. But many still believe that you need to put at least 20% down, and that’s just not the case anymore.
In fact, I just got off the phone with an agent in Tucson who says she’s doing a lot of 3% Federal Housing Agency (FHA) loans and 5% conventional loans—and I’m hearing that a lot lately, especially in the middle of the country.
That said, no matter what’s available to you, if you have the money, put down more. Back in the day, my parents always said, buy with 20%. And there’s something to be said for that—it’s always safer to not be so highly leveraged.