Mortgage Loan Products: Share of 3% Down Payment Loans Hit 11-Year Low

New data from RealtyTrac shows that the percentage of buyers paying low down payments on their home loans dropped to an 11-year-low last year. While not stated explicitly on the firm’s report, the analytics serve as another example of why rapid home price gains in 2014 were one of the main headwinds slowing down the housing market recovery last year.

Calendar year 2014 was not the best of years for the U.S. housing market, as far as post-recession years are concerned. Rising prices benefited underwater and near-underwater consumers and helped them rebuild equity, but had the opposite effect of pricing out first-time home buyers and other lower-income consumers.

With last year’s rapid home price gains, it was not surprising that only 25 percent of buyers paid less than 3 percent on their mortgage, may it be a conventional home loan or a Federal Housing Administration-backed mortgage. This was a slight drop from 2013’s share of 27 percent, and a big gap from the 46 percent share in 2009, when first-time home buyer tax credits had created froth in the mortgage purchase space. In 2006, the share of buyers paying under 3 percent on their mortgages was a much healthier 37 percent.

Still, RealtyTrac pointed out in its analytics that down payments have typically ranged between 13 to 16 percent over the past ten years. In 2013, the average down payment reached a record high of 15.6 percent, or $58,900, and in 2009, this metric hit an 11-year low of 12.9 percent. In 2014, the average down payment in terms of value was a slightly more reasonable $58,496. This is interesting, considering the average purchase price of $291,428 in 2014 and average loan amount of $232,527 the year prior, which makes the above statistics un-weighted.

Another interesting part of the RealtyTrac analytics was the finding that low down payments usually mean a lower sales price. Low down payment loans, or mortgages where the down payment percentage ranges from 0 to 3 percent, are typically available for homes valued at $200,000 or less. When it comes to more premium homes, meaning those that cost more than $500,000, down payment percentages are usually in the 20 percent range or higher.

In specific, the average sales price for purchases where there was no down payment made was $154,214. For mortgages wherein the down payment was less than 3 percent but more than zero percent, the average sales price came in at $190,304. As for homes where consumers paid 50 percent down or higher, the average purchase price was a hefty $502,213.

Still, 2015 should be very promising as far as 0 to 3 percent down payment loans are concerned, thanks to recent changes made by Fannie Mae and Freddie Mac, where qualified borrowers can pay a minimum of 3 percent down on their mortgages, effectively giving them a maximum 97 percent loan-to-value ratio. However, these changes are expected to impact a select number of loans, and a certain percentage of qualified borrowers, and not everyone for every type mortgage product available.