Since only a slim margin of the nation’s population can afford to pay cash for a home, most Americans take out home loans or mortgages. In addition to meeting the loan requirements, borrowers are also expected to begin the purchase process by supplying a down payment. The typical amount has varied over the years, ranging from 10 to 25 percent of the total purchase price. In the years following 2008’s economic downturn, the majority of lenders tightened their belts and began requiring borrowers to pay a minimum down payment of 20 percent. So, for a $200,000 home, the hopeful buyers would need to come up with $40,000 for the down payment.
Such a hefty sum is not exactly easy to come by, especially for first-time buyers. That is why the latest news from RealtyTrac is a huge relief for millions of prospective new homeowners. The housing data firm recently published its findings for the first quarter in the U.S. Home Purchase Down Payment Report. The results showed that for the purchase of single-family homes, townhomes and condos, the typical down payment averaged 14.8 of the purchase price. This figure reflects a decrease from 15.2 percent, which was the average from the previous quarter. Previously, the lowest level for down payment totals was in the first quarter of 2012 and that was 15.5 percent.
Please keep in mind that the report averages ALL loans, including those from the FHA and traditional lenders. FHA purchase loans averaged 2.9 percent of the purchase price. In hard, cold cash, that amounts to $7,609. Buyers initiating mortgages from conventional means paid around 18.4 percent down, or $72,590. Although that may sound like a lot, it is still 1.6 percent less than the usual.
RealtyTrac’s vice president, Daren Blomquist, reflected, “New low down payment loan programs recently introduced by Fannie Mae and Freddie Mac, along with the lower insurance premiums for FHA loans that took effect at the end of January are helping, given that first-time home buyers typically aren’t able to pony up large down payments.” Blomquist also noted that mortgage shy first-time buyers have gradually begun to get back on the house-hunting trail. He went on to observe that the flood of institutional investors, who’d previously been buying huge numbers of single-family homes for future rentals, has finally subsided. Another factor that resulted in the favorable down payment average news is that the share of home loans originated from FHA programs has been on the steady rise.
So, just where are these low down payment home purchases trending the most? In a Q1 analysis of 367 counties across the country, with a total population of 100,000, the standouts were: Wayne County, Michigan in Detroit (12.0 percent), Philadelphia County (12.6 percent), Clark County, Nevada in Las Vegas (13.3 percent), Riverside County, California in Inland Southern California (13.7 percent) and Maricopa County, Arizona in the Phoenix metro area (14.2 percent).
Housing market analysts seem to agree that the increasing number of low down payment loans shows a high degree of interest among the nation’s lenders and the U.S. government to provide a means to expand the number of U.S. homeowners. The news has been especially encouraging for first-time homebuyers, who have been waiting in the wings since 2008.
Craig King, who is the CEO of the Chase International brokerage in Lake Tahoe explained why first time buyers have recently become more active: “The dangers of interest only, negative amortization, and low, low credit score loans are not a part of today’s low down payment loan programs. These are the components that got buyers in trouble during the severe downturn. Without those types of high-risk components, low down payment loans are a sound strategy.”
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