Low Downpayments are Much More Common Than You Think

by Peter Thomas Ricci

June 20, 2014

We’re conditioned to think that downpayments lower than 20 percent are in scant supply, but the data doesn’t bare that out.

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It’s the peanut butter and jelly of today’s mortgage markets – not only do lending standards remain stubbornly high, but borrowers are also expected to thrown down 20 percent if they want any hope of securing a mortgage.

The latter idea has received special scrutiny from industry analysts and media personalities alike, but new research from Freddie Mac suggests that high downpayments may not be all that they’re cracked up to be, and that much of what we think we know about downpayments may be incorrect.

The Prevailing Myth of High Downpayment Requirements

First, we should point out that if you think high downpayment requirements are uniform, you’re not alone. According to the findings of a recent survey by Zelman & Associates, 39 percent of consumers believe the minimum downpayment requirement is as least 15 percent. Other findings included:

Only 28 percent of respondents were optimistic that they could qualify for a mortgage.
Moreover, when looking at the 25-34 year olds age groups – which make up the majority of first-time homebuyers – as many as 72 percent were doubtful of their chances at securing a mortgage.
Respondents believed that borrowers require, on average, 11 to 15 percent equity to obtain a mortgage

The Truth Behind the Mortgage Markets

So, how are the mortgage markets really functioning? A new analysis by Christina Boyle, Freddie Mac’s VP of single-family sales and relationship management uncovered some eye-opening things when it came to the mortgages that Freddie ensures.

Since 2009, Boyle wrote, Freddie’s purchase of mortgages with downpayments of 10 percent or less has more than quadrupled, and thus far in 2014, more than one in five borrowers – greater than 20 percent, in other words – have taken out conforming, conventional mortgages with downpayments of 10 percent or less.

What does that mean? That although credit standards remain high, there is more opportunity out there for consumers than meets the eye.