Banks Ease Standards on Downpayments

Banks are relaxing downpayment requirements, a sign that the housing market is strengthening.

A new LendingTree report reveals that U.S. homebuyers in May put down an average 16.1 percent on a home backed by a 30-year fixed mortgage. That is down from 17.6 percent two years ago, according to the survey.

Lenders had tightened credit standards in the wake of the financial crisis, many demanding minimum downpayments of 20 percent; but the improving economic climate has made them more open to smaller downpayments.

“Lenders have increasing confidence that the loans they’re originating today are less likely to default,” said LendingTree founder and CEO Doug Lebda. Low downpayments are not without their drawbacks, however, according to Lebda and other industry insiders.

Borrowers willing to make only a small downpayment could lose out to other bidders in competitive housing markets; likely will have to make bigger monthly loan payments and pay more in interest if their bid is accepted; and could find it more difficult to unload their home later if prices depreciate.

Source: MarketWatch (06/04/13) Marte, Jonnelle