New GSE Low Down Programs Lower Average Down Payments

New 3 percent down programs from Fannie Mae and Freddie Mac helped to lower average down payment to 14.8 percent of the purchase price in the first quarter, down from 15.2 percent in the previous quarter and down from 15.5 percent a year ago to the lowest level since Q1 2012.  However, low down payment loans by conventional lenders actually decreased during the first quarter.

The average down payment for FHA purchase loans originated in the first quarter was 2.9 percent of the purchase price while the average down payment for conventional loans was 18.4 percent of the purchase price, according to RealtyTrac.

The average down payment for all loans was $57,710 in the first quarter, up slightly from $57,618 in the previous quarter and down slightly from $57,992 in the first quarter of 2014. The average down payment in dollars for FHA purchase loans originated in the first quarter was $7,609 while the average down payment for conventional loans backed by Fannie Mae and Freddie Mac was $72,590.

The share of low down payment loans — defined in the report as purchase loans with a loan-to-value ratio of 97 percent or higher, which would mean a down payment of 3 percent or lower — was 27 percent of all purchase loans in the first quarter, up from 26 percent in the fourth quarter and also 26 percent a year ago to the highest share since Q2 2013. Low down payment loans accounted for 83 percent of FHA purchase loans originated in the first quarter, while 11 percent of conventional loans were low down payment loans.

Throughout the quarter the share of low down payment loans incre4ased, from 26 percent in January to 27 percent in February to 29 percent in March, according to the report. FHA loans as a share of loan originations also increased throughout the quarter, from 21 percent in January to 22 percent in February to 25 percent in March.  The overall volume of loans was also much higher in March compared to the first two months of the year.

Although overall low down payment loans increased as a share of all purchase loans in the first quarter, the share of conventional loans that were low down payment loans decreased throughout the quarter, from 11 percent in January and February to 10 percent in March. Meanwhile, the share of FHA loans that were low down payment loans increased throughout the quarter, from 83 percent in both January and February to 84 percent in March.

“Down payment trends in the first quarter indicate that first time homebuyers are finally starting to come out of the woodwork, albeit it gradually,” said Daren Blomquist, vice president at RealtyTrac. “New low down payment loan programs recently introduced by Fannie Mae and Freddie Mac, along with the lower insurance premiums for FHA loans that took effect at the end of January are helping, given that first time homebuyers typically aren’t able to pony up large down payments. Also helping tilt the balances toward first time homebuyers in the first quarter is less competition from the large institutional investors that have been buying up starter home inventory as rentals.”

“While it’s good to see that the share of low down payment loans is gradually increasing, we’re concerned that many new buyers are unaware of options available to significantly reduce their down payment,” said Rob Chrane, president and CEO of Down Payment Resource. “Across the country, down payment program help averages almost $12,000. Even if a buyer has saved the minimum down payment, these additional benefits go a long way towards helping reduce out-of-pocket down payment and closing costs.”

“Researching available low down payment loans and programs can make a material impact on a homebuyer’s finances for years to come,” Chrane continued. “These programs can be paired with FHA or conventional first mortgages. Homebuyers can ask their Realtor and lender if they work with the state and local Housing Finance Agencies that provide these programs.”