Tuesday, January 27, 2015

3% Down Mortgages are Coming Back

It is getting easier for some buyers to land a house with less money up front.

More lenders are lowering down-payment requirements, allowing borrowers to commit 3%—or even less—of a home’s purchase price to get a mortgage. Many had been requiring down payments of at least 20% since the recession began.


Some lenders also are waiving mortgage-related fees, and more are allowing down payments to be made by other parties, such as the borrower’s family.

The deals are aimed at buyers with good credit scores and a steady income who have been unable to save enough for a sizable down payment. They are often targeted at buyers who live in expensive housing markets, where even a small down payment can equal tens of thousands of dollars.

Low-down-payment mortgages have long been available. The Federal Housing Administration insures mortgages with down payments as low as 3.5% and it is lowering the annual mortgage-insurance premiums on new mortgages beginning on Monday.

The trend has picked up since mortgage-finance giants Fannie Mae and Freddie which buy most mortgages from lenders, recently lowered the minimum down payments they will accept to 3% from 5%. The changes are driven by an Obama administration effort to make homeownership affordable to a wider group of buyers.

Borrowers should be aware that small down payments leave them more at risk of owing more on their mortgage than the property is worth should home values in their market decline.

In addition, borrowers likely will incur higher costs over the life of the loan, including higher interest rates and, often, mortgage insurance.

The moves come as mortgage originations declined substantially last year. Lenders gave out an estimated $1.12 trillion in mortgages in 2014, down 39% from a year earlier and the lowest amount since 1997, according to the Mortgage Bankers Association, a Washington-based trade group.

Most mortgages have been going to existing homeowners who are refinancing into lower interest rates, as demand among home buyers has been low compared with historical norms.


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