Banks want higher downpayments from buyers

WASHINGTON – Feb. 17, 2011 – Banks increasingly tell borrowers that if they want to buy a home, they need to come with a higher downpayment. The reason: Banks hope to minimize the risk they’re taking on should home prices continue to fall. Plus, banks say larger downpayments discourage delinquencies.

The Obama administration last week called for gradually increasing downpayments to a minimum of 10 percent on conventional loans that can be bought or guaranteed by Fannie Mae and Freddie Mac.

The median downpayment in nine major U.S. cities rose to 22 percent in the fourth quarter of 2010 on properties purchased through conventional mortgages – the highest in median downpayment since the data started being tracked in 1997, according to a Wall Street Journal and Zillow.com analysis.

In the late 1990s, median downpayments once averaged 20 percent in the nine metro cities Zillow analyzed, but in 2001 they started inching downward as banks began requiring little or no down payment in some cases during the housing boom.

Now banks want more, believing that the more a buyer has invested, the less likely they are to default.

Borrowers who can’t afford the higher downpayments are seeking assistance elsewhere, such as loans for veterans or those backed by the Federal Housing Administration that requires a 3.5 percent downpayment, or loans by the United States Department of Agriculture for rural areas.

Source: “Banks push home buyer to put down more cash,” The Wall Street Journal (Feb. 16, 2011)

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