Down Payment Proposal Could Make A Mountain Out Of A Mortgage

Most home buyers put down less than 20 percent when they take out a mortgage, a sign of how hard it has become to scrape together enough cash to purchase a home. It’s especially tough in the pricey Washington area, where more than half of borrowers put down less than 10 percent.

Prospective home buyers may soon face a rude awakening.

Seeking to avoid a repeat of the foreclosure crisis, the Obama administration and regulators have proposed rules that are all but certain to boost the interest rates and fees on many low-down-payment loans. Only borrowers putting down 20 percent could get the best deals.

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Banks Push Home Buyers to Put Down More Cash

The down payments demanded by banks to buy homes have ballooned since the housing bust, forcing many people to rethink what they can afford and potentially shrinking the pool of eligible buyers.

Last week, the Obama administration called for gradually raising down payments to a minimum of 10% on conventional loans, meaning those that can be bought or guaranteed by mortgage giants Fannie Mae and Freddie Mac. And mortgage data show that private lenders are already pushing sharply higher the required down payments, mainly to mitigate their risk as home prices continue to fall.

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Home Prices Falling Despite Low Mortgage Rates

The fine bloggers over at Calculated Risk have a good article today about the future of housing prices. In essence the article asserts that there have been declines in home values in both May and June that have yet to fully show up in many measures of home prices.

This premise is based upon data from Campbell Surveys that shows prices for short sales fell 6.3%, move-in ready foreclosures fell 6.8 percent, and non-distressed properties dropped 4.6 percent.

The decline can likely be traced to several factors. First is the collapse in demand for homes following the expiration of the first time home buyer tax credit at the end of April (the overall weakness of the economy also plays a part in the lack of demand). The next factor is the massive overhang of houses on the market and in the hands of banks and lenders. Finally, the sheer volume of foreclosed and distressed homes negatively affects the price of homes.

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5 Tips for Saving for a Down Payment on a Home

The first financial challenge when you're thinking about buying a home is how to come up with the down payment.

Traditionally, homebuyers need a down payment between 10 percent and 20 percent of the purchase price. During the housing bubble that figure dropped sharply, even down to zero. But loans that didn't require a down payment are now seen as one of the culprits of the mortgage crisis, because they allowed people to buy homes they couldn't afford.

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