Banks Want Higher Down Payments From Buyers

Banks are increasingly telling borrowers that if they want to buy a home, they need to come with a higher down payment. Banks are requiring higher down payments in order to help mitigate the bank’s risk as home prices continue to fall. Plus, banks say larger down payments discourage delinquencies.

The Obama administration last week called for gradually increasing down payments to a minimum of 10 percent on conventional loans that can be bought or guaranteed by Fannie Mae and Freddie Mac.

The median down payment in nine major U.S. cities rose to 22 percent in the fourth quarter of 2010 on properties purchased through conventional mortgages–the highest in median down payment since the data started being tracked in 1997, according to a Wall Street Journal and analysis.

In the late 1990s, median down payments once averaged 20 percent in the nine metro cities Zillow analyzed, but in 2001 started inching downward as banks began requiring little or no down payment in some cases during the housing boom.

Now banks want more, believing that the more a buyer has invested, the less likely they are to default.

Borrowers who can’t afford the higher down payments are seeking assistance elsewhere, such as loans for veterans or those backed by the Federal Housing Administration (which require 3.5 percent down payment), or loans by the United States Department of Agriculture for rural areas.

Source: “Banks Push Home Buyers to Put Down More Cash,” The Wall Street Journal (Feb. 16, 2011) and REALTOR® Magazine Online 2/16/11

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