New Types of Low Down Payment Loans Contributing to High Foreclosure Rate

One of the many reasons contributing to the recent increase in the amount of foreclosures is the relatively new presence of loans available for little or no down payment to buyers. These loans came about in response to rising property values during the past few years, and were intended to allow buyers who were unable to make proportional down payments to still buy a home. PRRelease.com reports new findings that homebuyers who bought houses in the first half of 2005 put less than 5% down on the purchase price, up 30.6% since 2000.

This trend can be seen in different lights, but many these days are pointing to it as the reason we are seeing rising foreclosure rates around the country. Often times, the types of loans that offer such minimal down payment make up for it in other ways, such as Adjustable Rate payment schedules. While the loan stays at a constant rate for the first year, after that the interest rate is subject to change. Since the housing market has cooled off as of late, interest rates are rising drastically, and many of these less well-off homeowners are finding it increasingly difficult to keep up with their monthly payments. This leads to default, the first step towards foreclosure.

What makes this situation worse is that since the homeowner has provided such a small down payment, they have almost no equity in their home built up. This means refinancing is often eliminated as an option. And, since property values have fallen, selling their home may not even bring in enough to break even.

It is important for homeowners to be on top of their own financial situation in regards to their mortgage in order to avoid foreclosure. With home values continuing to fall, one of the most important things to figure out is whether or not you owe more on your mortgage than your home is worth. If this is the case, action must be taken, and it might be a good idea to sell before values fall any farther.
To learn more about how to avoid foreclosure, visit the Department of Housing and Urban Development website at www.HUD.gov.

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