Housing

The Return Of The 20% Down Payment

If you want to buy a house, there's a good chance you'll have to put 20 percent down, the WSJ reports this morning.

This is high by recent standards. But if you put 20 percent down, you're still borrowing 80 percent of the value of the house. You're still making a hugely leveraged investment. If you're like most people, you're still taking out by far the biggest loan of your life.

Requiring a higher down payment also means people are less likely to wind up owing more on the loan than the home is worth — and less likely to default on their mortgage.

The WSJ story looked at loans backed by Fannie Mae and Freddie Mac, the mortgage giants now run by the government. These aren't supposed to be exotic loans; these are supposed to be boring, meat-and-potatoes mortgages.

If somebody takes out a loan backed by Fannie or Freddie and doesn't pay it back, taxpayers are on the hook. So higher down payments also mean taxpayers are less likely to bail out people who buy a home and can't pay the mortgage.

Zillow crunched down payment stats from several cities around the U.S. for the WSJ. The median down payment was just over 20 percent. During the housing boom, the median down payment was as low as 4 percent. And in many cities, the median — the median! — was 0 percent.

Rising down payment requirements have driven many buyers to other types of mortgages. Loans backed by the Federal Housing Administration, which require a 3.5 percent down payment and payment of mortgage insurance, accounted for half of loans for home purchases last year, according to the WSJ.

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