The home loan down payment average is falling across the country, now at 15.73 percent,according to a recent report published by Lending Tree. The falling mortgage down payment average represents a decrease of 9.4 percent over the past two years from 2011 to present. In some instances, consumers are getting approved for a mortgage with just 12 percent down and still others with less than 10 percent.
Here in Florida, the average down payment to get a home loan is 16.5 percent; what's more, the interest rate on a fixed, 30-year mortgage is about 4.27 percent, down one basis point from 4.28 percent from two weeks prior. This is also under the national average of 4.31 percent by a margin of a full 4 basis points. Consumers are qualifying for mortgages with less then 1/5 of the purchase price down, especially those with high credit scores and low DTI ratios. A consumer's DTI or debt-to-income ratio is the difference between what mortgage applicants earn in their monthly gross and their debt obligations, which are revolving credit and loans. Lenders prefer to see a debt-to-income of 35 percent or less.
Across the nation, regional banks, as well as the big lending institutions are easing their qualification standards to attract more consumers. The more people taking out a mortgage, the more business banks can record on their balance sheets. Another reason for the falling average in mortgage down payments is it simply is becoming an acceptable standard to the banking industry--an industry which is desperately trying to recover from hundreds of millions of dollars in defaulted home loans, refinances, lines of credit, small business loans and student loans.
Why the Average Mortgage Down Payment is Falling
Consumers are likewise contributing to the phenomenon of paying less up-front for a home loan, calculating that putting 20 percent down will cause them to pay more in the long term. Doing the math, plunking down 20 percent is a bad financial move because during the time they are stowing away money to save up for a down payment, home prices are rising, and so are interest rates. That all but guarantees they will pay more over the life of the loan, wiping away any savings they may have realized. There are also plenty of other causes for the drop in mortgage down payments. First and foremost is the price of consumer goods is steady increasing, and there are numerous signs of inflation. This has led banks into easing lending requirements; and, as stated, banks are still reeling from the Great Recession.
The average down payment for 30-year fixed rate mortgages dropped to 15.73% of the home’s value in the third quarter this year, down 2.74% from the second quarter, according to a report from LendingTree. A news release about report, which detailed the average down payment percentages by state, highlighted the relationship between down payment averages and home prices. 'Lenders are putting more focus on purchase mortgages and are adjusting minimum requirements to attract borrowers,' says Doug Lebda, LendingTree founder and CEO. 'With home values improving, the risk of borrowers defaulting on loans has decreased, giving lenders more confidence to lend with less cash down from qualified borrowers.' --Yahoo Homes
In addition, the Federal Reserve is likely to stop its stimulus program, known as quantitative easing, or, the practice of digitally creating virtual money, which is then used to purchase various investments. Once the Federal Reserve eases off quantitative easing, interest rates will immediately begin to increase more. That will put a serious damper on consumer sentiment, and people will think twice about taking out a mortgage.
What to Do Before Getting a Mortgage
Even though the time is right to apply for a home loan, it's not a good idea to fly into filling out a mortgage application. Here are some things to do before applying:
- Get on a real budget. It's more likely than not you're spending money you could be saving, so get on a real budget.
- Payoff the right debts. Talk to a mortgage broker to learn which debts you should pay down or pay off.
- Thoroughly review your credit file. Request a copy of your credit file from each of the three reporting bureaus, then go over them carefully and dispute any inaccuracies.
- Spend less than you are approved for by the bank. The temptation will be great, but spending less is a way to hedge against unfortunate circumstances in the future.