3% Down Payment Mortgages Declining
By Chuck Bentley
New research by RealtyTrac indicates that fewer people are getting low down payment mortgages than in previous years. The percentage of new mortgages with a 3 percent down payment was the lowest in 2014 of the previous 10 years, at 25 percent of all home purchases.
In other words, only 25 percent of home buyers taking out residential house loans (conventional or Federal Housing Administration loans) put less than 3% down when purchasing a home, versus 27 percent in 2013, according to new analysis by real estate data firm RealtyTrac of nearly 20 million loans for single-family homes and condos nationwide over the last 10 years. That’s the lowest level in a decade. First-time buyers are among the most likely candidates for these loans.
“It may seem like a lot but the average over the past 11 years has been 33%,” says Daren Blomquist, vice president at RealtyTrac. He went on to explain, “The government has been promoting these low down payment loans in an effort to encourage more first-time buyers [to] get a leg on the property market. The FHA has offered a 3.5% down payment loan, and many can be below 3% due to down payment assistance programs.” The government-backed lending enterprises Fannie Mae and Freddie Mac recently introduced the 3 percent down payment loan program, and the U.S. Department of Housing and Urban Development also lowered the insurance premiums that low down payment borrowers have to pay.
Although it make take a number of years to save for a larger down payment, I recommend that you save at least 20 percent for a down payment before making a home purchase. The government is attempting to stimulate an economic recovery with these 3 percent programs, but these are some of the very same policies that caused the financial crisis of 2008. It is better to be conservative when buying a house than to get into the stress of an upside down mortgage should prices drop after you have made your purchase.
Originally posted 3/11/2015.