Finding the spare capital to put 20% down payment on a home purchase is wonderful, however it’s certainly not the norm. Still, many people believe that it is and therefore the belief may be holding some would-be home buyers back, particularly young adults.
The massive Down Payment Misconception
Indeed, 39% of non-owners say believe that they need in excess of 20 percent for a down payment on a home purchase. 26% believe they must put down 15% to 20%, and 22% say they need a down payment of 10 % to 14% to purchase, according to the National Association of REALTORS®’ 2017 Aspiring Home Buyers Profile report.
The good news is for the reality: The average down payment on a purchase mortgage was simply 11% in 2016. And that’s merely the average; in many cases down payments are much lower. For borrowers under the age of 35, the typical down payment was just under 8%, as outlined by NAR’s survey.
As such, “aspiring first-time buyers think it will take double the amount to buy a home than it really does,” writes Jonathan Smoke, realtor.com®’s chief economist, in his latest column.
How much an individual truly needs for a down payment depends on their situation. Their financial circumstances, home location, as well as the price of the home are important factors.
But there are many mortgage options which provide the opportunity to make low or perhaps no down payments. For instance, the Department of Veterans Affairs and the U.S. Department of Agriculture offer no-money down loans to individuals that are eligible. In 2016, 16% of buyers younger than 35 put no cash down on their home purchase.
Further, the largest share of loans for buyers under age 35 last year were for people putting down less than 5 % on a home purchase (or about $3,500). The 3% down payment programs supported by Fannie Mae and Freddie Mac, as well as the 3.5 % FHA mortgage that primarily targets first-time buyers, are both helpful programs to take into consideration. These mortgage programs don’t require unblemished credit either. The common FICO score was 713, but realtor.com® notes borrowers with a 639 were still getting approved.
As such, Smoke says the millennial longing for home-ownership needs to get this message: They need a FICO score of at least 639 and enough for a 5% down payment (that is, should they not qualify for the other programs with lower payment options). If that’s the case, they’ll need to save about $3,500 to purchase in the typical American town.
