Down Payments Declining in Changing Mortgage Scene
Many buyers assume they need to put down at least 20 percent of the purchase price in order to qualify for a loan, but the average down payment for a 30-year, fixed-rate mortgage in the first quarter of 2014 was 15.78 percent, according to data compiled by LendingTree. That’s down from 16.01 percent in the fourth quarter of 2013.
Also, average credit scores for LendingTree customers dropped 6 percent year over year, suggesting that lenders are more willing to consider a wider pool of borrowers.
“As the housing market improves and refinance activity declines, lenders are adapting their guidelines to improve credit accessibility for borrowers,” Doug Lebda, LendingTree founder and CEO, said in a statement.
“Relaxed lending guidelines translates to a larger pool of qualified homebuyers that could boost the housing recovery,” Lebda said. “While lenders still need proof that a borrower has the financial ability to repay the loan, lenders have started to accept lower down payments and credit scores from potential borrowers.”
Average down payments by state in the first quarter ranged from 12.31 percent in North Dakota to 19.36 percent in New Jersey. Unsurprisingly, California residents dropped the third largest down payments in the U.S. — 18.21 percent — slightly lower than buyers in New York, who put down an average of 18.54 percent.
The LendingTree data supports another recent study that found lenders have lowered borrowers’ minimum FICO credit scores and debt-to-income ratios over the past year to attract more business.
First-time buyers, who generally face the closest scrutiny from lenders, would do well to talk with a real estate professional for help finding a lender and prequalifying for a home loan before entering negotiations with a seller.
If you plan to buy a home in the Bay Area or the Tahoe/Truckee region, Pacific Union’s mortgage partner, Mortgage Services Professionals, can offer loan advice and consultation to help make your purchase a success.
(Image: Flickr/Lucas Stanley)