One of the biggest hurdles to buying a home is accumulating the pile of cash for a down payment, said Tara Siegel Bernard in The New York Times. By some estimates, it could take two decades to come up with a respectable 10 percent.
With the introduction of several new programs, prospective home buyers with little money to put down now have more options to consider. But they will need to sort through the many rules and fine print to find the most cost-effective loan, and they may ultimately come to the realization that it actually pays to wait and save a bit more.
Both Fannie Mae and Freddie Macrecently introduced similar programs aimed at middle-income borrowers that permit down payments as low as 3 percent. And the Federal Housing Administration, which insures loans and generally requires down payments of at least 3.5 percent, recently lowered one of its fees, making the program a bit more competitive with the two new options.
Whether it is prudent to buy a home with so little down is the first questionborrowers need to answer. Critics have already questioned whether borrowers’ having such small stakes in their homes will potentially result in another rush of defaults, which tend to be higher on mortgages with smaller down payments.
But it is important to know that the low-down-payment options now available are not synonymous with the subprime loans that proliferated during the housing bubble, which often required little more than a pulse to qualify. Without these new programs, advocates said swaths of the population will be locked out from the forced savings plan that is homeownership. After all, it would take 20 years for a household earning about $50,000 to save 10 percent, plus closing costs, for a $158,000 home, according to calculations by the Center for Responsible Lending.
“Right now, we have excessively tight lending standards and thousands of creditworthy borrowers are losing out on an opportunity to build wealth through homeownership at a time when we are experiencing historically low interest rates,” said Nikitra Bailey, an executive vice president at the center.