Saving For A Down Payment?
One of the most important aspects to buying a home is saving up the initial capital for a down payment. In fact, out of polled homebuyers, the consensus was that saving for a down payment was the hardest part. While saving for a down payment should be a top priority for buyers, especially first-time homebuyers, it is important to recognize many myths associated with down payments. Some include how much to save, where to start, and what to do with that money. If you are saving for a down payment to buy you home, here are some of the most important items to remember.
20% Down Payments Are Old News
Most people that we talk to feel overwhelmed about saving for their down payment. One reason for many people feeling overwhelmed is a decades-old myth. This myth, that you must have at least 20% of the purchase price saved for down payments, has resulted in unnecessary stress and angst. In fact, many first-time homebuyers think homeownership is unobtainable due to the simple fact that they have been told they would need 20% down.
The Average Down Payment Is Much Lower Than 20%
In today’s market, there are more homes sold with less than 20% down than ones that have put down 20%. This is largely due to the numerous different loan types and down payment assistance programs. In fact, for first-time homebuyers, the typical down payment amount is usually 3.5%. 3.5% is considerably more obtainable than 20%, especially in a time when rents are soaring and the cost of living continues to rise. As Freddie Mac explains:
“. . . nearly a third of prospective homebuyers think they need a down payment of 20% or more to buy a home. This myth remains one of the largest perceived barriers to achieving homeownership.”
Unless your loan or lender requires a large down payment, it is typically unusual to see 20% down payments nowadays. According to the latest Profile of Home Buyers and Sellers, the median down payment for homes has not been 20% since before the Great Financial Crisis. The data, that comes from NAR (National Association of Realtors), sheds light on just how old this myth truly is. Loans such as FHA require as little as 3.5%, but come with a caveat of PMI, or private mortgage insurance. Loans through the USDA or VA actually require 0% down, far less than 20%.
Saving For A Down Payment? Try This…
There are many different ways to save for a down payment. However, for those who still find it challenging to save for this step, there are options. Hiring a professional realtor and lender can open a world of opportunity to these potential buyers. Down payment assistance programs are all over, in forms of grants or loans. According to the Homeownership Program Index from downpaymentresource.com, there are over 2,000 homebuyer assistance programs in the country. Most of these assistance programs come in the form of down payment help.
According to a recent article on their website,
“These resources can immediately build your home buying power and help you take action sooner than you thought possible.”
And for first-time homebuyers, most of these will pertain to you. However, even if you are not a first-time homebuyer, there is still programs available to you as well. According to another article from the same website,
“It is a common misconception that homebuyer assistance is only available to first-time homebuyers, however, 38% of homebuyer assistance programs in Q1 2022 did not have a first-time homebuyer requirement.”
Most of these are location and profession-based programs, and there are many different ones that potential buyers can qualify for.
Final Thoughts
Saving for a down payment can be a daunting and stressful task. However, put these myths aside, and look for help. Hiring a professional can make a world of difference, and allow you to take the homeownership journey seriously. Remember, 20% down payments are out, and down payment assistance programs are readily available. Saving for a down payment no longer has to be stressful.
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