Coming Up With the Cash
Saturday, August 23, 2008
Not so long ago, Qiana Parker wouldn't have had to give up her apartment or curtail her shoe-buying habit to save for a down payment on a house.
But in the year since the mortgage market imploded, securing a loan without money down has become much harder -- impossible in some cases. Facing growing losses, mortgage lenders and insurers are tightening standards and demanding more from borrowers such as Parker, 33, a registered nurse and the mother of a teenager.
In the Washington region, many buyers are being asked to come up with a 10 percent down payment, real estate agents and local lenders said. "Piggyback" loans that allow buyers to sidestep mortgage insurance have nearly disappeared. In May, the D.C.-based mortgage financing firm Fannie Mae eliminated its no-money-down mortgage programs.
More changes are coming. Congress recently passed legislation prohibiting down payment assistance programs that federal officials complain are more likely to fuel loans that will eventually default. Under those programs, nonprofit groups provide home buyers with money for their down payments and are reimbursed by the sellers. That provision goes into effect Oct. 1.
All this has left buyers scrambling for cash or reconsidering how much they can afford to pay for a house. Many are opting for Federal Housing Administration loans, which allow for a down payment of just 3 percent.
But buyers have several options for raising the money for a down payment. They can simply put off a purchase and save more or borrow from a family member, financial planners said. They could also tap into the network of nonprofit groups and government-run programs offering help. Some can consider withdrawing money from their retirement accounts.
"Before you get into this, before you even start shopping for a home, go and investigate potential sources of money. Don't dismiss grant programs," said Keith Gumbinger, a vice president at HSH Associates, a real estate research firm. "It is really worthwhile to dig into that stuff. You might not qualify, but it doesn't cost anything" to investigate, he said.
After watching the housing market collapse, Parker took a conservative approach when she decided to buy a home. "Nothing is for free," she said. "If you don't pay anything, it is going to come back and hurt you."
Parker attended home-buying classes at HomeFree-USA, a nonprofit organization, and moved in with her mother, giving up her $1,200-a-month apartment. She set aside her income tax refund and stimulus check and cut back on shopping trips, including for her favorite indulgence, shoes. By the end, she had saved $13,000.
Parker recently found a three-bedroom house in Prince George's County with the open floor plan and updated appliances she wants. She had just enough for the 3 percent down payment on an FHA loan, plus closing costs.
FHA loans are a growing part of the mortgage market, becoming a safe haven for home buyers with little cash. In July, 29.1 percent of all accepted mortgage applications were for government-insured loans, most from the FHA, according to the Mortgage Bankers Association. That was up from 8.4 percent in July 2007, before the mortgage crunch.
But soon even FHA loans will require more of an upfront investment. A housing bill passed by Congress and signed by President Bush requires the agency to raise its down payment requirement to 3.5 percent.