TAMPA – Feb. 25, 2011 – During the housing boom, it was easy for buyers to get in over their heads. The government pushed for homeownership, and nearly anyone could get a mortgage with no money down – and they didn’t even have to prove they could pay it back.

We know how that ended. And now lenders say ‘no more.’

The median down payment required by lenders swelled to 20 percent late last year on conventional loans in the Tampa-St. Petersburg-Clearwater metro area, according to Zillow.com. Compare that to 5 percent in 2007.

As home prices continue to fall, lenders want homebuyers to plunk down larger down payments to help offset the bank’s risk.

Even as median down payments have risen, some buyers are still being approved for conventional loans with as little as 3 percent down, said Shawn Miller, a mortgage broker with VanDyk Mortgage in Tampa.

But that may change soon. The Obama administration said earlier this month it wants to raise down payments to a minimum of 10 percent on conventional loans.

Michael Kelley, a financial advisor who recently bought his first home, said he agrees buyers should “have more skin in the game.” However, he thinks most buyers couldn’t afford to put 20 percent down.

Kelley and his wife, Sarah, originally planned to put down 20 percent so they would have enough equity to avoid mortgage insurance. But they decided instead to go with a 15-percent down payment so they could keep an emergency fund.

“We were trying to make sure we had enough money available so that if something arises, and it always does, we can take care of it,” Kelley said.

Many of those now in foreclosure put little to no money down during the housing boom. Some think homeowners will be less likely to get in over their heads if they have to save more money to buy a home. They may also be less likely to walk away, lenders say, if they have more to lose.

That may be true, Miller said. Dramatically raising rate requirements could “crush” the area’s real estate market recovery.

Buyers won’t be able to afford as high of a home price, he said. That could push home prices down further. Others will stay out of the market.

“I do understand the thinking of wanting buyers to have more skin in the game,” Miller said. “But probably 80 to 90 percent of my buyers are putting down as little money as possible.” In this economy, Miller said, even buyers who have the money to put down seek out loans with lower down payments.

That was the case with the Kelleys. If required to put down 20 percent, Kelley said they would have waited.

“That would have pushed our finances beyond where we wanted to be,” he said.

Even though the changes could hinder the recovery in the short term, the market will be better off with larger down payments, said Stan Humphries, chief economist at Zillow.

“We’re getting back to where we were in the 1990s,” Humphries said. “The housing boom rates were an anomaly.”

The increases have buyers turning to non-conventional loans, such as FHA and VA, which require less money down. Typically, however, there are downsides to those types of loans, including higher fees and higher interest rates.

Those flocking to these loans may soon have to put more down, too. The federal government has called for a gradual rise in down payment requirements for these loans.

As of late last year, 43 percent of all borrowers in the Tampa metro took out FHA loans, Zillow data show. That’s up from 3 percent during the heat of the housing boom in 2005.

“About 50 percent of my business is FHA right now,” said Jane Floyd of Diversified Home Mortgage.

Requiring more money down won’t just impact first-time buyers, Floyd said. Move-up buyers who can’t come up with a large down payment but have good credit have been opting for FHA loans, she said. But those loans have home price limits of just under $300,000.

“People are much more conservative than they used to be,” Floyd said. “If they have to put that much more cash down, they just might wait to buy or buy something less expensive.”

Copyright © 2011 Tampa Tribune, Fla., Shannon Behnken. Distributed by McClatchy-Tribune Information Services.