The best moves in mortgages in 2009

1. Have we saved enough for a down payment? 

During the credit and housing boom, people routinely bought houses with no money down. Piggyback loans were the norm, as homeowners avoided mortgage insurance. Nowadays, substantial down payments have made a comeback, and so has mortgage insurance.

A few low down payment programs are still available; all of them courtesy of the federal government. The Veterans Administration guarantees mortgages with no down payment, and so does the Department of Agriculture's Rural Housing Service. There are restrictions on who is eligible for those loans, where the loans are available, and for how much.

More people are eligible for Federal Housing Administration-insured mortgages, which require down payments as low as 3.5 percent.

Outside of those federal loan programs, most lenders require significant down payments. The requirements vary by lender, the type of dwelling, and where it is. A few creditworthy people might be able to buy houses with 5 percent down, but a minimum 10 percent down payment is more common.

Mortage insurance companies won't insure loans on Florida condominiums, so lenders require down payments of at least 20 percent. For jumbo mortgages in California, many lenders require a 30 percent down payment.

On top of that, the lender will want to know how you got the down payment money. Is it from personal savings? Was all or part of the money a gift from family? If some of the money was given to you, the lender will want to make sure you have enough savings and income to handle temporary financial setbacks.

3. Is this the right time in our lives? 

Homebuyers, especially first-timers, should aim to own for the medium to long term. House prices have room to fall further in many -- if not most -- markets, and it could take years for prices to rebound. In short, it's a bad idea to buy a house with the intention of selling it in two or three years. Doing so could be a money-losing proposition, especially after factoring in the costs of real estate commissions and taxes.

2009 smart moves: Refinance the mortgage

Elements within the housing industry flew a trial balloon in December 2008 to gauge public support for using the Treasury to cut mortgage rates to 4.5 percent. There was one catch: The low rates supposedly would be for purchases, not refinances.

Nevertheless, mortgage rates have dropped to levels not seen since the refinancing boom of 2003. The low rates sparked a refi boomlet in late 2008, but lots of homeowners were frozen out because their homes had lost equity.

About two-thirds of homes have mortgages. Of those, an estimated one-sixth are underwater -- in other words, the owner owes more on the mortgage than the house is worth. These borrowers can't refinance unless they have enough money saved to make up the difference -- and then some, because they need some equity, too.

According to First American CoreLogic, almost one-quarter of mortgages nationwide were in the category of "near negative equity" in October 2008. These loans were not underwater (yet), but the owners had 5 percent equity or less. These borrowers might have trouble refinancing because of the paucity of their equity.


The squeeze caused by falling home values will have a relatively big effect on homeowners with good credit who got adjustable-rate mortgages sometime in 2004, 2005 and 2006. These are the people who will have an incentive to refinance out of their ARMs and into fixed-rate mortgages (a process that Quicken Loans chief economist Bob Walters calls "dis-ARMing").

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Claes Bell

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