Homebuyers are making substantially smaller down payments than they once did, Washington Post columnist Kenneth Harney notes. The median down payment for first-time purchasers was a mere 2 percent, and nearly half got loans with no money down, according to research by the National Association of Realtors from mid-2005 to mid-2006. (Repeat home buyers, who often used the proceeds of prior home sales, typically invested 16 percent). There are several reasons down payments are shrinking, Harney writes: home prices have shot up relative to buyers’ savings, and mortgage lenders and insurers have begun offering a rash of low down-payment options.
Yo wants to know: have you spotted this trend in the Chicago or suburban markets?
This really isn’t news. DP’s having been shrinking for seveeral years now. However, now that appreciation is in the low single digits as opposed to 10%+ lenders will start requiring more. That will have a direct effect on demand.
George,
You’re correct. The fact that down payments have shrunk is not news.
I think the scale on which it’s happened is news – a median 2% down payment, and nearly half zero downs is a stunning development.
Shrinking and vanishing are different things.
We put down about 15% for our first-time home–we could have put down 20%, but I’m always wary about the rainy day fund dropping below 6 months worth of living expenses. We paid off the HELOC for the other 5% within 9 months.
Yes, I’m lucky enough to have a good (well, at least lucrative) job, and yes, we’re pretty thrifty and sock every spare penny (but not Penny) towards savings or higher interest debt.
Glad you qualified that last sentence, Joe. I was about to send the folks from Child Protective Services over.
This is a result of the culture of “must have it all right now” that most people operate in. If you can’t put any money down, you should not be buying a house. You should be renting – which is what you are doing anyway when you dont put any money down. Only difference is that you are renting from a bank, and you get all of the up/downsides of ownership.
What are you talking about? 100% financing is the best thing to come since sliced bread! Why waste your money on a downpayment??? You can invest that money instead! Let your money work for?
if you want, I can sell you two mortgages (so I can earn two brokerage fees hehehehe). The first is for 80% of the value of the property; the second is for 20% of the value of the property. I can get the seller to pay your 3% closing costs! You don’t even need to bring a penny to the closing table!
What’s even better is that I can configure your loans so YOU choose how much you pay…Say for example, that its a tight month, too much partying and you can’t afford the full mortgage payment. Well, with our loans, you can choose to pay what you can afford! You can pay an amount LESS than the interest on the note if you want. Sure, the rest of the interest gets tacked onto the principal but with home prices rising it’s like free money. After a couple of years your payment will go up but don’t you worry about that. After appreciation of 15% a year you can refinance into another option ARM; or you can sell your home and POCKET THE CASH. Take a trip around the world; buy a BMW; what would you do with your money?
The reason that down payments are shrinking is because Americans in general and “young Americans” in particular DO NOT SAVE! They spend and borrow…come to think of it, just like a lot of their elders and Uncle Sam…and if we still demanded 10-20% down payments there would be virtually NO first-time buyers under, say, age 40something when maybe Mom or Dad’s will comes through and some of the ‘rent’s cash can be used for a DP. You think the real estate market is “soft” now…if we eliminated low-down-payment loans for the mostly young first-timers that are the target market for many of these places, the whole business would indeed collapse.
Nice spoof, Mortgage Man.
Are you writing telemarketing scripts for mortgage brokers? You have a flair for it.
Just reading the topics here on Yo!, every condo is from $400-800. So to avoid PMI one would have to put down $80,000 – $160,000…… Hmmmmm Where’s my wallet at??
If I had that much money laying around I surely would not buy in Chicago!
Ugh. More reports of the sky falling: Americans don’t save, etc. Thank heaven for the market, because if the central-planning enthusiasts at Yo made the rules, I’d never have been able to purchase my home.
Before we wax nostalgic about how we were really frugal and we saved everything we could back in the good old days (which, to borrow from Tolstoy, people of limited intellect are fond of doing), we might want to do five or six minutes of research (with actual data and everything) on the topic. As the savings rate has fallen in this country, the investment rate has skyrocketed. That’s rather a good thing.
Mortgage products that allow limited or no down payment allow those of us with strong earnings but limited wealth more options in purchasing our home. Whether or not buyers have over-levered in their purchases (i.e., purchased too much house) is another subject altogether.
West side – your points are vald for a strong market, but not so if we have market corrections, etc. Higher investment, while good, has huge risk and the one’s making money off of that are the lending instituions.
Many, if not most, recent first-time buyers have no equity in their homes at all. If they ever had any, they cashed it out to buy a Hummer. Yet these people think they’re so financially sophisticated just because they are not officially renters, never mind that they will never actually own their house and will just rent from the bank forever.