The truth about home down payments...right now

With all the talk about the credit crunch and tough housing market, a lot of people are terrified of looking at houses because they're afraid they won't be able to get a mortgage. While it's true that credit score requirements are higher than ever -- somewhere north of 700 is helpful and subprime is a no-go -- a 20% down payment is not necessarily needed. This week The National Association of Realtors offered the following tips:
  1. An individual may be required to put down 20% based on that person's financial situation. But that is not an across-the-board requirement for all borrowers.
  2. A borrower who puts down less than 20% is required to obtain mortgage insurance.
  3. Even in a declining market, a borrower is required to make at least a 5 or 10% down payment.
  4. FHA requires a 3.5% down payment by borrowers, so long as they meet a 31% housing cost-to-income ratio. In other words, anyone who stays within their budget and who can afford a 3.5% down payment (even with family help) can become a homeowner.
FHA loans are becoming increasingly popular because of their low down payment requirements. The FHA's market share in the mortgage industry has grown tenfold in the past year, with FHA loans now making up about 30% of all mortgages. It's also possible to get an FHA loan with a weaker credit score than you would need for traditional Fannie and Freddie mortgages -- although you have to wonder whether you're prepared for the responsibilities of a mortgage if you've had credit problems recently.
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