Most home buyers expect to put 10% or less down, Zillow finds

    Despite tougher lending standards, a poll commissioned by Zillow finds that 17% of those planning to buy a home within two years expect to do so with zero down payment. Another 36% expect to make down payments from 1% to 10% of their home purchase price. That means 53% plan to buy a home with a down payment of 10% or less.

   Whether these hopeful buyers will be able to get such mortgages is a question lenders will have to answer. But mortgages with low down payments -- or none at all -- put a lot of hot air in the housing bubble. Zillow's Amy Bohutinsky said of the nearly one-fifth of buyers who plan to put no money down,  "Given the fact that home values are still declining in most markets [and most "bottom" forecasts reach into 2010], this surprises us."

-- Peter Y. Hong

Comments

[Rich]

My observation is that this always "surprises" people who are not actually in the process of buying or selling or getting a mortgage. The claim that lenders have all gone back to requiring 20% down payments is some apocryphal story which hysterical Californians want to believe, and may have some validity in a few distressed local markets, but certainly is not the case generally. I believe it was reported by the NAR a couple of months back that most mortgages nationwide which are not refinancings now are FHA or VA insured, which means the borrowers had the option of 0%-15% down payment ranges as standard. 0% usually requires that one go through some kind of mortgage counseling program first, depending upon the state. 20% down payments have not been generally standard since the 1960's and the housing market would enter a 100-year recession if 20% down became a universal standard. Few people ever manage to save that much cash even for homes within easy reach for their incomes, which is why the 20% number eroded long ago. Where standards have tightened up are in what credit ratings will let you get a mortgage and the appraisals on the properties...

[myfailsafe]

Denial is a track home in Los Angeles..................

[Fred]

What's so surprising about this? Homes are still selling for well over $400,000 dollars in any decent neighborhood in LA. Who the hell has $80,000 to put down on a home these days? Who the hell would want to put that much down with the way the economy is going?

[David]

These people shouldn't even consider buying a home yet. If you can't make the down payment (20%) what makes you think you'll be able to afford the monthly note? There's nothing wrong with renting and saving up to put 20% down. What's the rush to buy a home? Why buy today when tomorrow it'll cost less? Plus with little or no down, you'll just have negative equity if the price drops more, which will put more home owners under water.

[stephanie]

Hahaha! Who are these people? Are they serious? These are probably people who have no business in buying a house at all if they cannot save at least 10% for a home if not more.

[sfvrealestate]

This surprises me, too. These potential buyers have not been paying attention if they think they'll be able to purchase with zero down. That said, FHA programs do allow people to purchase with 3.5% down, and that entire amount plus closing costs can be a gift from a family member. Are all these people planning to get their entire down payments from the bank of Mom and Dad?

[Laker]

"...17% of those planning to buy a home within two years expect to do so with zero down payment...."
Those will stay renters.

The others will probably use the 3.5% Down FHA loans that with today's market in LA, will make them upside down after 3-5 months..

[kag]

You MIGHT be able to get 100% financing, 80-15-5 or some combination thereof, but at what blended i%?

Based upon our refi experience with a TARPed money center bank, anything less than 20% down, top-tier credit score, stellar DTI & exemplary employment history & you're in for a long slog.

Good luck to qualified borrowers.

[DF]

I'm not surprised. Two reasons. First, for about a decade down payments have been unusually low. 20% used to be the norm, but it hasn't been in a long time. People have present-ist bias, so the more recent trends affect expectations more than longstanding historical norms.

Second, prices are still too high in most parts of LA. If they were in line with historical averages, people would feel capable of putting down more cash. If prices remain inflated, 10% will continue to represent the upper end of what people can reasonably pony up.

[larealtyreport]

This comes as no surprise. As Peter says, mortgages with low down payments or none at all were the fueling the hot air balloon we know as the housing bubble. What worries me is the next wave of defaults in the prime and alt-a mortgages. Only then will we be able to see the damage done by no doc loans with little or no money down.

[erin]

seems silly to me to make this about one group of people who pay 20% down and then the rest of the irresponsible losers who don't. there's a big difference between NO down payment, and a 3-10% down payment. i just bought a house in Pennsylvania, and I put 5% down -- could have put 10% but that didn't change any of my terms, so why? Nobody even suggested that we pay more than that.

Also, it makes no sense at all to say if you can't put 20% down, how can you afford the mortgage. I can afford the mortgage just fine as it is way, way less than my current rent. I just wanted to keep some cash around for improvements. One has nothing to do with the other.

[erin]

I should add that we got a 30 year fixed rate conventional loan. We do have excellent credit and solid employment with full documentation.

[Andi]

Ivy League education with excellent jobs, no debt - let me repeat that - NO debt - None, not even even credit card debt. Honda Accords for cars - paid off. One credit card paid off IN FULL at the end of each month. No student loans. Haven't been on vacation in 13 years. Hate to shop. No drugs, drinking or other expensive habits. We don't even have cable for God's sake!

NO WAY we could have even begun to save 20% for our house - NO WAY. How can anyone - even educated people with great jobs - afford to pay rent and BASIC living expenses and save 20% ($80,000 on a $400k house???)

And forget it if you end up with a medical issue...even being insured with a good PPO, we ended up with THOUSANDS in bills over a *small* emergency medical issue that took years to pay off...

We are EXCEEDINGLY responsible with our finances, but I think we put 3% down and that was 9 years ago when our *little* bungalow house in Thousand Oaks was only about $300,000. Of course, we NEVER took out equity loans and sold and left the state 2 + years ago before the burst, and sorry, those who played that game were just stupid.

Somethings gotta give...and that something was the amount expected for a down payment because otherwise no one would have been able to touch home-ownership.

Unless you want to address the high rents in CA, and high living expenses, otherwise face the fact that home ownership is going to ONLY for the very rich in our society.

[aaron]

Little or no down payment is a disaster waiting to happen again. The housing market is still very risky, the current economy is not too good, and current housing prices could drop substantially, if you buy now is more likely youll be upside down next year for sure, especially if you lose your job in this recession, youll end up walking away.

Save your money, wait, how long? who knows? for me ateast another year. lets hope Obama can stabalize the economy, its not going to well now, its too risky right now. wait.

[aaron]

The way things are currently going with economy, who knows what will happen? The feds have pump billions, and they still can not stimulate the economy,
If you want to buy a house, buy at rock rock bottom prices only, a fixer upper, fix it your self. Thats the only way you may be able to ride out this recession. oh one more thing, only buy if you can buy it at a absolute steal, talking a house thats selling in a neighbor hood for example of $400,000, if you cant get it for less than $200,000 WALK AWAY. remember your your own gatekeeper of your money!

[TONY H (Los Angeles)]

It's very difficult to justify home prices in Echo Park, Silver Lake and surrounding areas for upwards of $600,000 When the rest of the country seems to be leveling off and selling homes at more realistic prices. Who can afford to put down 10 or 20% down in a state that leads the nation in job losses?

[Ace]

I love that the survey respondents could check either:

zero down payment

or 1-10 percent down payment

Those who really plan to buy with zero couldn't get their hands on a 1 percent down payment so they could be in the same group as people who saved 10 percent down?

[Cal]

I call BS on Andi, how can you have excellent jobs, no debt and no savings? 3% down on 300k home? 9k was your liquid assets? I had half that when I was making $8 an hour. Either your expenses are larger than you are letting on or your incomes aren't as "excellent" as you lead us to believe.

[El Patron]

Andi said:

Somethings gotta give...and that something was the amount expected for a down payment because otherwise no one would have been able to touch home-ownership.

I'm in a similar situation to yours (no debt, excellent job, no student loans, no expensive habits, 2000 Honda Accord with 120K+ miles) albeit not an Ivy leauge degree but some memorable vacations to talk about.

There is something els that will eventually give: home pricing. All mentions of price stickiness, economy turning around, green shoots, etc is all happy talk. Until all the resets/recasts/forclosures are flushed out (see Credit-Suisse reset chart) and the credit card bubble & commercial RE bubble implode, home prices will continue to look for a bottom, probably 2012-2013. By then a 10-20% down payment may be reasonable.

(by the way, take a vacation: my wife always says the only thing you take to the grave are your memories...)

[Saver]

I've been reading for a long time (even with all this hot property nonsense) and only been compelled to post something now...

Andi, sorry, it can be done. My husband and I have no debt, great jobs (he's a recent immigrant and has worked himself up in the last 3 years from a telecom job paying $18 an hour) and a car payment. We started saving in Jan 2006 and as of today have about $85K saved.

And we didn't suffer to do it, nor did we not take vacations (because they are important.)

We (hubby, daugther and I) live in a crap 2 bedroom apartment where my daughter shares her room with my home office (gotta love the fax machine going off in the middle of the night and waking her). I've been living in this apartment for 14 years...since our (meaning my parent's house was foreclosed in 1995 after they lost a lot in the LA Riots. Rent is $1000, which is cheap for our area.

We wanted to make sure we could afford a mortgage, so every month, we put an additional $2,000+ away. $26,000 a year and 3.5 years later, we are almost to our goal of $100,000 which we targeted as a 20% DP on a 500K house.

It wasn't tough...we just did it and everything shifted to work within whatever budget was left. We still eat out, enjoy our lives and save save save. And we feel confident that when we finally do buy a house (whenever that is) we will be able to actually afford our mortgage without it being super scary, because we've been "practicing" paying it for years.

Waiting and saving, waiting and saving.

[Peter Hong]

@Saver: we kind of did the same thing. one trick that worked for a while was cutting back to one car instead of two for a few years (didn't last that long after our child was born).

[DSL]

A buyer is in escrow to buy my condo and the buyer is only putting $10K down (less than 3%). The buyer is extremely well qualified and she was able to obtain a loan easily. This stated 20% requirement, for better or worse, is balderdash.

[Ken Lay]

MGIC just today stopped doing business in the private mortgage insurance space.

This will make it much worse for buyers with less than 20% down, since it will be that much harder (or impossible) to get PMI. Lenders generally aren't brain-dead anymore.

Average home prices still have to drop to a level where the average buyer can put around 20% down - you know, the way it was before the bubble...we're a long way from that.

[Paula]

I'm wondering what Andi means by excellent jobs if two people with Ivy degrees can't save up $80K in a decade. I have an Ivy MS degree, make $100K/yr, and I've saved up $45K all by myself after only 5 years working. And I even have student loan and car loan debt!

Oh, and I'm only 27. Even if I don't find a life partner to share the downpayment burden, I'll still be able to afford at least a condo in a nice area by the time I'm 30, especially with all the trends indicating that housing will still be low two to three years from now.

Maybe your "great" job isn't so great after all...