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NEW YORK â€“ Aug. 21, 2017 â€“ A 20 percent downpayment is no longer the norm. In the past year, 1.5 million borrowers purchased their homes with downpayments of less than 10 percent, according to Black Knight Financial Services. That marks a seven-year high.
A growing number of home shoppers are financing more than 90 percent of their home purchase.
“The increase is primarily a function of the overall growth in purchase lending, but, after nearly four consecutive years of declines, low downpayment loans have ticked upward in market share over the past 18 months as well,” says Ben Graboske, executive vice president at Black Knight Data & Analytics. “In fact, they now account for nearly 40 percent of all purchase lending.”
The study showed that the segment with the largest growth in low downpayment levels has been from purchasers putting 5 to 9-percent down.
Graboske says that low-downpayment loans today are nothing like the ones blamed for causing the housing crash. Half of all low downpayment loans at that time were second loans or “piggyback loans.” Today’s mortgages are mostly single, first liens, Graboske notes. The loans of the past also were mostly adjustable-rate mortgages, which are virtually nonexistent among low-downpayment mortgages today, according to the Black Knight report.
Instead, most loans issued nowadays are fixed-rate. Borrowers’ credit scores are also about 50 points higher than those between 2004 and 2007, according to Black Knight.
The growth of low-downpayment loans has mostly been triggered by new programs offered by mortgage financing giants Fannie Mae and Freddie Mac, which brought back 3 percent down payment loans in 2014. They require borrowers to pay mortgage insurance, just like the FHA does.
So far, defaults on recent low-downpayment loans have been modest, Black Knight reports. But economists note that’s mostly because home prices are rising fast and borrowers have been gaining equity quickly.
Source: “Homebuyers Put Less and Less Skin in the Game, Adding to the Market’s Overall Risk,” CNBC (Aug. 14, 2017)
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