The Truth About Buying a Home: You DON’T Need 20% Down
In a recent survey, How America Views Homeownership, it was revealed that 68% of Americans feel that now is a good time to buy a home and 95% said they want to own a home if they don’t already.
Franklin Codel, head of Wells Fargo home mortgage production, explains:
“Although the home buying process has changed in many ways in recent years, our survey found Americans still view homeownership as an achievement to be proud of and many believe that now is a good time to buy a home.”
Confusion Creates Paralysis
However, the survey also reported that many are afraid to purchase a home because of uncertainty about “qualifying for a mortgage or navigating the home buying process”. Though 74% said they “know and understand” the financial process involved in buying a home, they also gave answers that suggest otherwise. For example:
•30% of respondents believe that only individuals with high incomes can obtain a mortgage
•64% of respondents believe they must have a “very good” credit score to buy a home
•44% believe that a 20% down payment is required
In actuality many of these beliefs are unfounded. Let’s look at the question of down payment:
Freddie Mac, in a recent blog post addressing the issue, confirmed that there is misinformation regarding the amount necessary when determining the down payment for a home purchase:
“Did you know 40 percent of today’s homebuyers using mortgage financing are making down payments that are less than 10 percent? And how about this: since 2010, the number of people putting down less than 10 percent for conventional loans has grown three fold. So, not only are low down payment options real, they represent a significant portion of today’s purchases.”
In a separate Executive Perspectives, Christina Boyle, Freddie Mac’s VP and Head of Single-Family Sales & Relationship Management explained further:
•A person “can get a conforming, conventional mortgage with a down payment of as little as 5 percent (sometimes with as little as 3 percent coming out of their own pockets)”.
•Qualified borrowers can further reduce the down payment coming out of their own pockets to 3 percent by lining up gifts from family, grants or loans from non-profits or public agencies.
Education is the Key
Boyle talked about the importance of educating potential buyers:
“Letting more consumers know how down payments are determined could bring more qualified borrowers off the sidelines. Depending on their credit history and other factors, many borrowers can expect to make a down payment of about 5 or 10 percent.”
“It is important for prospective homebuyers to feel empowered to ask lenders and real estate agents questions about available options, such as down payment assistance or FHA loan programs or VA loans for veterans.”
If you are saving for either your first home or that perfect move-up dream house, make sure you know all your options. You may be pleasantly surprised.