In Pursuit Of a Down Payment

With Lenders Wanting More, Buyers Have to Dig Up New Sources of Money

Even for people who have money, coming up with a down payment to buy a house has become a lot more challenging in recent months.

Take Peter McGarvey, who in September found a house big enough to accommodate his family of four and close enough to the Metro that his wife could commute to work. A bidding war ensued over the 2,000-square-foot home, in Takoma Park. He offered $710,000 and won.

Then came the hard part: making enough of a down payment to get a good rate on a loan and keep the monthly mortgage payments manageable.

Because he had not yet sold the house he already owned, he had to cobble together a down payment from other sources. "We have lots of equity in the house, and we have money saved up. Unfortunately, most of it is in retirement funds and mutual fund investments," McGarvey said.

Here's how McGarvey and his wife came up with 10 percent to put down, plus the cash they needed for closing costs: $25,000 was left from the sale of mutual funds about a year ago, $25,000 came from their parents and another $50,000 came out of the Thrift Savings Plan, a retirement program for federal employees that McGarvey's wife has through her job at the Environmental Protection Agency.

Even a few months ago, borrowers did not have to go to such lengths. That's because it was easy to get a mortgage that required little or no money down. In fact, four out of 10 first-time buyers used no-money-down mortgages in 2005 and 2006, according to surveys by the National Association of Realtors. The median down payment for first-time buyers in those years was 2 percent of the purchase price, meaning half paid more and half paid less.

But now that those loans are being blamed for a spike in foreclosures, many lenders are no longer offering them or have become pickier about who gets them. The theory goes that borrowers who put a lot of their own money into properties will be less willing to default and walk away.

"Traditionally, the more someone has invested, the better the payment record," said Charlie Vance, manager for the Washington and suburban Maryland division of Wells Fargo Home Mortgage.

A New Norm: 5 Percent

That's not to say that lenders are requiring down payments of 20 percent or more, which was the norm until the mid-1980s.

"I don't think we're there yet," said Franco Terango, consumer real estate executive for the mid-Atlantic branch of Bank of America.

There are still some low-down-payment programs. Federal Housing Administration-guaranteed loans, intended primarily for low- and moderate-income, first-time home buyers and others who don't have enough for a down payment, call for 3 percent down. If you're a veteran or a member of the military, you can still get 100 percent financing.

But if you don't fall into any of those categories and you're looking for a conforming loan, one that's eligible for purchase by Fannie Mae or Freddie Mac, "you're talking about a minimum of 5 percent down," said Guy Cecala, publisher of Inside Mortgage Finance. On a $400,000 house, that's $20,000.