What is the difference between a "declining market" and a "distressed market"?
"Declining market" is a term that lenders give to areas where the values of properties are going down. There are many rules, but generally speaking, Fannie Mae and Freddie Mac require that 5% be taken off the loan-to-value (LTV) for a loan on those properties. This is a lender rule. "Distressed market" is a term that the mortgage insurance companies give to areas where the values are going down. The general rule for a distressed market is that the MI companies will only insure loans up to 95% of the value, meaning the borrower will have to put 5% down. This is a mortgage insurance company rule. To make it more complicated, not every declining market is a distressed market, and not every distressed market is a declining market. The easiest way around this problem is to finance properties with FHA and VA loans because neither of these loans have private mortgage insurance. FHA loans have MI, but the government, rather than a private MI company, insures the property.