Lenders are Asking for Larger Down Payments for Mortgages

There was a time when a small down payment or even no down payment at all was good enough for lenders to approve a buyer for a mortgage loan. That was just a few years ago. Unfortunately, practices like that is what led to the housing crisis that we are experiencing today. Many lenders have learned their lesson and they now require home buyers to put down more money in order to get approved for a mortgage.

President Obama announced last week that the down payment requirement for a conventional mortgage loan should be at least 10 percent. These are the types of loans that Fannie Mae and Freddie Mac can guarantee. Private lenders are also requiring a larger down payment before they will consider a buyer for a mortgage as well. They want to reduce their risk with falling home prices and the large number of foreclosures going on right now.

In nine of the larger cities across the country last year, the median down payment was just above 20 percent. That was for conventional mortgages. That's the highest median down payment in more than 20 years when the industry first started tracking that information. The 22 percent also represents a number that has doubled in the last few years from when the median down payment was closer to 10 percent of the hom's sale price.

Banks are requiring larger down payments under the theory that home buyers will have more invested and they will be less likely to walk away from their home if they have more invested in it. The higher down payments also reduce the negative impact that the banks have taken on the dropping home prices. According to a 2009 study conducted by the Federal Reserve Bank of St. Louis, buyers who have made small down payments on their homes are more likely to let their mortgages go into default when they encounter ôunfavorable economic circumstances, such as a higher interest rate, job loss or some other financial difficulty.

The unfortunate thing about the higher down payment requirement is that many borrowers cannot save up $10,000 or $20,000 to put down on a home. For these buyers, there are some programs that can help, including the Federal Housing Administration, the VeteranÆs Administration and others. Even FHA-backed mortgage require a 3.5 percent down payment before being considered for a mortgage loan. Some people who do not qualify for these programs have simply given up every achieving their dream of buying a home, or at least putting it on hold for the foreseeable future. Others, however, are stashing away money a little bit at a time and sacrificing so they can save up just for the down payment.

Are you considering buying a home but the down payment requirement is holding you back? Are you one of the ones who has given up? Or are you looking at this as a challenge and doing all you can to achieve your dream of owning a home?