Prospective homebuyers in New Jersey are facing the highest down payment rate in the country and are being asked to put down an average 13.71 percent of the total purchase price, according to a new annual report from LendingTree for 2011, cited by the New York Times.
The down payment rates in New Jersey even exceed those in New York, where the average down payment is around 13.47 percent. The national average is 12.24 percent, for the year ending in November. [more]
Banks are continuing to step up their down payment requirements for prospective homebuyers, which could mean fewer Americans will be able to become homeowners in the coming years. In the video above, the Wall Street Journal examines a push by the Obama administration last week to increase minimum down payments to 10 percent for mortgages guaranteed by Fannie Mae and Freddie Mac. Meanwhile, private lenders are already requiring more cash up front in an effort to reduce the likelihood of delinquencies later on. Last year, the median down payment in nine U.S. cities for properties purchased with conventional mortgages was 22 percent — triple what it was three years earlier.
From the December issue: Everyone loves cash. Nothing new there. But in this market, cash deals are even sweeter. In some cases, a onetime payment could even be the only way to close a sale, according to brokers, attorneys and developers. And discounts often await all-cash buyers. There are other benefits: less paperwork and fewer delays in getting deals done. No long waits for banks to pore over buyers’ financial records, only to reject them on the eve of closing. “Cash used to be king, but now it’s the emperor,” said Luigi Rosabianca, a real estate attorney who says 50 percent of his clients have paid cash so far this year versus 20 percent in 2007 at the market’s peak. The exact number of cash deals is difficult to determine; property records on file with the city’s Department of Finance don’t specify how apartments are paid for. And the sheer number of cash deals doesn’t seem to be increasing, as the volume of all deals remains depressed.
New regulations from Fannie Mae and Freddie Mac are bucking conventional wisdom surrounding down payments and mortgage rates. According to rules put in place in late 2008, borrowers who put a 20 to 25 percent down payment on a home are classified as the riskiest class of borrower because they’re not required to take out private mortgage insurance. The result is that borrowers who make smaller down payments often have lower interest rates, according to this report. Fannie Mae spokesperson Amy Bonitatibus said that the new classification system was meant to highlight the importance of mortgage insurance, not dissuade borrowers from making larger down payments. “It’s just a less risky loan from our point of view,” Bonitatibus said.
