Final answer:
The amount of money that can be borrowed by home buyers can be reduced by factors such as the required down payment, economic conditions affecting the housing market, and federal government regulations on bank lending. Higher down payments and economic uncertainty can limit borrowing ability, while government changes that make getting home loans easier can enhance it.
Step-by-step explanation:
Several factors can reduce the amount of money that can be borrowed by most home buyers. One significant factor is the initial down payment required to purchase a home. Typically a 20% down payment is advised, which can be a substantial sum, making it difficult for potential buyers to save enough. Some buyers may opt for a lower down payment, such as 0-3.5%, but this comes with the requirement of purchasing mortgage insurance, which safeguards the lender in case of default, adding to the overall mortgage cost.
Furthermore, economic conditions also play a vital role. If banks observe a high number of loan defaults, they may tighten lending criteria, resulting in reduced borrowing capability for home buyers. The economic uncertainty caused by events such as war or recession can also affect the housing market, leading to stricter lending standards. In addition, if the overall level of savings in an economy diminishes, this may imply that fewer people have the financial means to afford a down payment or qualify for a home loan.
The federal government's bank regulations can also impact borrowing capacity. For instance, changes that make loans cheaper and easier can increase the amount buyers are eligible to borrow. Conversely, when restrictions on lenders are tightened, this might decrease the amount that can be borrowed.