Return of the 3 Percent Down Payment

A growing number of lenders are reducing down-payment requirements so that borrowers can contribute 3 percent or less of a home’s purchase price and still qualify for financing. In addition, some lenders are waiving mortgage-related fees, while others are allowing down payments to be made by such other parties as the buyer’s family. Such deals are targeted at buyers who have stellar credit scores and steady income but have been unable to save enough for a substantial down payment. Low-down-payment mortgages have been around for a long while. The FHA insures home loans with down payments as low as 3.5 percent, and it is lowering the annual mortgage-insurance premiums on new mortgages starting today. The trend has accelerated since Fannie Mae and Freddie Mac recently lowered the minimum down payments they will accept from 5 percent to 3 percent, driven by a White House campaign to make homeownership more affordable to a wider group of Americans. Jack McCabe, an independent housing analyst in Florida, cautions that borrowers must recognize that smaller down payments leave them at greater risk of owing more on their mortgage than the house is worth should property values in their market decline. Additionally, borrowers will likely incur higher costs over the life of the loan, including steeper interest rates. | Read More