​More Lenders Allow Smaller Down Payments - Real Estate​​

By: | 04/20/2013 07:02 PM ET

More Lenders Allow Smaller Down Payments - Some home buyers are finding it easier to make a smaller down payment on a mortgage with lenders. The real estate market is showing signs of rebound, and that’s making it easier to borrow.

More Lenders Allow Smaller Down Payments

The number of borrowers putting up less than 10 percent down on a conventional mortgage is increasing. According to the online real estate service Zillow, twice as many lenders are now offering non-FHA mortgages with down payments in the 5-10 percent range as there were two years ago.

Nearly one-fifth of conventional mortgage quotes offered through the online exchange Lending Tree reportedly included down payments in the 5-10 percent range, according to the company, compared to just 6 percent one year ago.

Several factors appear to be responsible for the increasingly availability of low-down payment mortgages, including rising home values. As home values gradually recover from their post-crash lows, lenders are increasingly confident that they’ll hold their value or continue to appreciate, and so are more willing to accept smaller down payments to secure a loan.

Rising costs for FHA loans, which allow down payments as low as 3.5 percent, have also been a factor. Government-backed FHA loans have been the main source of low-down payment mortgages the past few years, but several recent fee increases for FHA loan insurance have made them a less attractive option.

Finally, costs have declined for private mortgage insurance (PMI) , at least for borrowers with good credit scores, according to the article. PMI is required on conventional mortgages with less than 20 percent down and is significantly less expensive than what is charged for what the FHA charges for insurance on comparable loans.