No Money Down Financing Remains, Alas

by Peter G. Miller
November 14th, 2008

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Buying homes with nothing down is increasingly rare, a trend which should surprise no one. What should amaze folks is that in that in today’s financial environment so many buyers continue to purchase with no money up front.

The National Association of Realtors is out with the 2008 edition of its home buyers and sellers survey, one of the best real estate studies available. In a typical case, says NAR, buyers are putting down 9 percent when they purchase. The specifics, however, are different.

“One of the most significant changes in the characteristics of mortgage financing has been the sharp drop in the percentage of buyers who financed the
entire purchase of their home, reflecting the tighter underwriting standards that many lenders implemented during the past year. In 2007, 29 percent of buyers reported that they financed their entire purchase with a mortgage compared with 23 percent in 2008. Among first time buyers the share with 100 percent financing fell from 45 percent to 34 percent.”

Imagine that! A third of all buyers are purchasing with nothing down. Other than VA-qualified purchasers with federally-insured loans, you have to wonder how this is possible — and whether lenders have learned anything in the past two years.

The FHA mortgages now require at least 3.5 percent down. This is not a high barrier relative to historic requirements but it at least suggests some ability to save, to budget and to survive a missed paycheck.

In fact, the whole lending system is just-about barrier-free. NAR reports that 93 percent of all borrowers were approved by lenders, 5 percent were rejected by one lender and 3 percent were rejected by two or more lenders.

NAR says 91 percent of the borrowers it surveyed for 2008 financed with fixed-rate loans. This is remarkably good news as it suggests that borrowers are running as fast as possible from adjustable products as well as toxic loans with weird terms and huge penalties. Had folks been this smart for the past six years — and had lenders been as smart — we would not have a mortgage meltdown.

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