Down payment requirements often ignored in housing affordability discussions

By: Leslie Black-Plumeau

A recent study by the mortgage risk analysis company Andrew Davidson & Company confirms what many borrowers have been experiencing first-hand during the past few years:  lower mortgage interest rates do not make buying a home more affordable when significantly higher down payments are required at closing.   “Thus, even in a falling interest rate environment, housing could become less affordable,” the report explains.

During the peak of the housing boom, down payment requirements were often mitigated by taking out second mortgages or obtaining mortgage insurance.  Today, tighter credit standards mean that borrowers with little cash for a down payment have fewer options, though loans with low or no down payments are available to qualified borrowers through state housing finance agencies, like VHFA.   Some of VHFA’s Government Mortgages require no down payments and VHFA’s Conventional Mortgages require down payments of as little as 3%.