Down Payment Ignorance Persists

Despite FHA, more than 2000 down payment assistance programs and new low down payment options from Fannie Mae, Freddie Mac and private lenders ranging from Wells Fargo to Bank of America, most consumers don’t realize they can buy a home with less than 10 percent down today.

Even though the median down payment for first-time buyers is only 6 percent, according to NAR’s Profile of Home Buyers and Sellers, another NAR survey found that awareness of low-down-payment mortgage options was scarce across all ages, income brackets, and education levels.

Fewer than 20 percent in each group indicated that they need 10 percent or less to finance their home purchase. Those ages 65 and older (43 percent) and under the age of 35 (37 percent) were the most likely to believe that they need more than 20 percent.

Misconceptions keep buyers out of the market

The survey found that a misconception about how much of a down payment is needed to buy could be unnecessarily delaying some qualified young adults from entering the market, according to NAR’s Housing Opportunities and Market Experience (HOME) survey.

“It’s possible some of the hesitation about buying right now among young adults is from them not realizing there are mortgage financing options available that do not require a 20 percent down payment, which would be north of $100,000 in some expensive areas in the country,” says Yun. “In fact, most first-time buyers put down much less. In the 35 year history of NAR’s Profile of Home Buyers and Sellers – the longest-running survey series of national housing data – the average median down payment has been 5 percent for first-time buyers.”

Parents help with down payments

With home prices and rents continuing to climb and make it difficult for many to save for a home purchase, one avenue for about a fifth (19 percent) of current homeowners was receiving down payment assistance from a parent or relative.

Homeowners ages 34 and under were the most likely to say they received help from a parent or relative (34 percent), along with those living in the Northeast and in urban areas where growth and tight supply are leading to softening confidence among renters about whether it’s a good time to buy a home.  Some 16 percent of adults in the survey said they had helped a child or relative with their down payment. It’s no surprise that the older the respondent, the more likely they were to assist

A 2015 survey by loanDepot found that the number of parents who expect to help their Millennial-age children purchase a home in the future will increase by 31 percent compared to the past five years, from 13 to 17 percent. Half (50%) of the parents who will help their children buy a home say they’ll contribute toward down payments, while 20 percent will cover closing costs, and 20 percent will cosign the loan.

In the future, about two-thirds of parents (67%) say they’ll use savings to help their children buy a home, compared to 72 percent in the past. The number of parents who plan to use cash from a refinance or take out a personal loan to help their children buy a home is expected to double. In the past, just 4 percent of parents refinanced their homes and 3 percent used personal loans. In the future, those numbers are expected to increase to 8 percent for parents who will refinance and 8 percent for parents who will take out a personal loan.

Some 50 percent of parents who plan to help their children by homes in the future expect to contribute to their down payments, compared to 65 percent in the past. (parents table 3 and table 8).  Also, their contributions will be smaller.

About half are planning on giving less than 20 percent of the down payment while about 20 percent are contributing 20 to 40 percent. Only 13 percent are planning to give more than 70 percent of the down payment to their children in the future. (parents table 11).  In the past, some 20 percent of parents paid 90 percent or more of their children’s down payments; in the future only 8 percent plan to contribute that much.  The average down payment contribution by parents will decline from 36 percent over the past five years to 29 percent in the future.

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