Mortgage lenders have an important task of trying to help borrowers determine how much money they will spend on the down payment for a property purchase. Obviously the more that a customer pays up front, the less they will need to take out in the form of a loan. However it is often in a borrower's best interest to make a larger down payment, if they have the financial means to do so. As a lending expert, it is a fine line to walk between doing what's best for the customer versus the move that would most benefit the business.
Conversely, many lenders shy away from borrowers who want lower down payments, citing the high risk involved with those deals. Lending firms want to find that perfect middle ground when it comes to a down payment, though that isn't always what the borrower is looking for.
According to information released in June 2015 by RealtyTrac, the average down payment in the first half of the year was 14.8 percent of the purchase price, a dip from 15.5 percent in 2014. While the percentage was falling - RealtyTrac stated that was the lowest percentage of purchase price used for down payments since the first quarter of 2012 - it still is in the range that lenders are comfortable with. Borrowers are putting up more than $57,000 for a down payment, showing a lending firm they have the financial means to eventually pay back the remainder of their purchase price over the next 30 years.
Figuring out the correct amount for a down payment can be complex, and it varies on a customer by customer basis. Lenders must be aware of the ramifications for working with borrowers who want their down payment to be much lower than that 15 percent range, as more of those customers are currently in the real estate market than ever before.
More Support For Low Down Payments
While down payment value as a whole is dropping, the number of borrowers seeking low down payments - 3 percent of the property's value or less - is going up. RealtyTrac reported that made up nearly 11 percent of the entire mortgage market. While that number is higher than some lending firms would prefer, it is a promising indicator the real estate market is strengthening.
"The average down payment in the first half of the year was 14.8 percent of the purchase price."
Following the recession in 2008, many lenders were afraid to hand out low down payments, as borrowers for those deals were seen as too risky. With government-backed enterprises Fannie Mae and Freddie Mac now easing up on the qualifications to obtain a mortgage, lending firms are being encouraged to offer more low down payments.
According to MarketWatch, Freddie Mac CEO Donald Layton told the Mortgage Bankers Association in October that more people are qualifying for home loans under the new federal lending rules. Agencies need to develop products and plans that can help these potential borrowers acquire the mortgage they need, even if their down payment isn't very high. If not, they will be turning down a large swath of customers.
New Plan For To Help Borrowers
HousingWire reported in October that Freddie Mac partnered with retail lender Quicken Loans to make homeownership easier for more Americans, regardless of their financial situation. The two sides are looking to attract more borrowers seeking a low down payment purchase with affordable monthly mortgage rates. A customer who is in this financial position should be able to find a lending firm that is offering this down payment plan.
Along with launching a program for more low down payment mortgages, Layton has also encouraged lending firms to do the same. He told HousingWire in November that many lenders have a fear of working with borrowers that want a down payment of 3 percent or less. Yet that is where the marketplace is going, and agencies must keep up with the times, especially since there is protection in place in the event a borrower cannot repay his or her mortgage loan.
"We're sampling performing loans earlier to test for defect in manufacturing," Layton said. "All this is designed to have lenders feel more comfortable."
W.J. Bradley can help a customer evaluate their budget so they are spending the correct amount on a down payment.
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