Forbes.com heralded a grim forecast yesterday for potential homebuyers regarding mortgages and down payments. A poll conducted by the National Foundation for Credit Counseling asked consumers if they thought they could meet the down payment requirements in today’s market, and found that nearly half answered that they could not.
The article goes on to point a finger at the previous real estate market woes that have affected first-time homebuyers as well as existing homeowners—specifically, existing homeowners who have recently discovered that the sale of their previous home may not completely cover the down payment on their new home, due to some lenders raising the minimum down payment requirements to protect against the rising number of defaulting loans.
The ideal down payment for existing homeowners is 20% of the total cost of the home, and with the average price of a home in the U.S. nearing $200,000, a 20% down payment of $40,000 upfront is not always readily available to homeowners. First-time homebuyers are only required to put down a 3.5% down payment—unless their FICO credit score is lower than 580, which will require them to put down at least 10%. This policy was newly instituted by the Federal Housing Administration in January as a measure to strength the financial lending sphere and combat high foreclosure numbers.
The bottom line seems to be that preparation and prudent lending practices are key in today’s market. As the market stabilizes (as the FHA Commissioner believes), lenders may ease up on their more rigid requirements. But until then, homebuyers should try not to overextend themselves too much in the coming months.