The Down Payment Makes a Comeback

by Jack M. Guttentag

Over the past 18 months, the mortgage market has changed more rapidly than in any comparable period since the Great Depression. From the standpoint of borrowers, two changes are of paramount importance. The first is an increase in day-to-day price volatility. The second is a tightening of underwriting requirements, with higher down payment requirements the centerpiece. That is the subject of this article.

Underwriting requirements are the rules lenders impose to assure that loans will be paid off, and the down payment has always been the most important of them. The down payment is the difference between the lower of the sale price or property value and the amount of the mortgage loan secured by the property. If you purchase a house for $200,000 that is appraised for $200,000 or more, and you take a mortgage of $160,000, your down payment is $40,000, or 20 percent of value.