JUANA ARIAS/FOR THE WASHINGTON POST - Julia Ziegler says that to make a 20 percent down payment on the D.C. home she wants to buy, “I would have to save for a long, long time.”
Most home buyers put down less than 20 percent when they take out a mortgage, a sign of how hard it has become to scrape together enough cash to purchase a home. It’s especially tough in the pricey Washington area, where more than half of borrowers put down less than 10 percent.
Prospective home buyers may soon face a rude awakening.
Percentage of homebuyers who put down less than 20 percent in the region.
Seeking to avoid a repeat of the foreclosure crisis, the Obama administration and regulators have proposed rules that are all but certain to boost the interest rates and fees on many low-down-payment loans. Only borrowers putting down 20 percent could get the best deals.
To buy a home for $170,000, the median national price, the borrower would have to come up with $34,000 in cash.
It takes the average middle-class family 14 years to save that much money and closing costs, according to the Center for Responsible Lending. That’s a steep hurdle even though 20 percent down was a common standard for most of an earlier generation.
Even with help from her parents, Julia Ziegler, 29, a social media specialist for a local company, would have to put down less than 20 percent on the $250,000 condominium she wants to buy in the District.
“Coming up with $25,000 plus closing costs is tough, and I’m buying in the lower end of the market,” Ziegler said. “If I had to put down 20 percent, if I needed $50,000, forget it. I would have to save for a long, long time.”
Repeat buyers worried
The federal proposal’s impact would extend beyond first-timers such as Ziegler to repeat buyers, who generally have counted on equity built up in one home to provide the down payment for the next. For people such as Gina Pecoraro, who saw the equity in her Sterling home erode, the housing bust has left little cash to put toward a new house.
Pecoraro and her husband were looking to move closer to the District. But they had to kick in $27,000 just to sell the house they were in, and then they had to stretch to come up with a 3.5 percent down payment on the home they want in Alexandria. Although they could have waited longer to save up more, Pecoraro said she didn’t want to take a chance on mortgage costs going up.
“We just thought: ‘Let’s do it. Let’s cut our losses and hope for the best in the future,’ ”Pecoraro said.
Last year, about six of 10 Washington area home buyers put down less than 20 percent, reflecting the national trend, according to research firm LPS Applied Analytics. The percentages were considerably larger in Prince George’s and Prince William counties — 86 percent and 79 percent, respectively.
Consumer activists and housing industry executives warn that the proposed rules would make homeownership much harder to achieve, particularly for first-time buyers and minorities, who have relied in great numbers on low-down-payments loans.
“Renters, by and large, have very little cash on hand, and minority renters have even less,” said Barry Zigas, housing policy director at the Consumer Federation of America. “Raising down payment barriers to a level that history tells us is neither necessary nor appropriate will foreclose homeownership opportunities for millions of families.”
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