Down Payment Myths Costing You Money
Is 2022 your year to buy a new home? Last year, many buyers decided to wait for calmer waters hoping they could enter a more stable market by waiting a few months. However, we’ve found that many first-time buyers wonder if they should keep delaying their purchase based on persistent myths over down payment requirements.
Let’s start with the basics. A down payment is money paid upfront in a financial transaction, such as the purchase of a home. Around 87% of buyers take out loans to finance the remainder of the purchase price, which is why we’re surprised to see some misconceptions prevail even in 2022.
Thirty-five percent of consumers believe they need a down payment of 16% to 20% of the purchase price. Ten percent believe they need more than 20% for a down payment to purchase a home, according to survey data from the National Association of REALTORS®. As you may imagine, buyers that believe this were really discouraged last year seeing home price increase in the double digits, because it meant that saving for such a large down payment would be an even tougher hurdle.
However, the typical down payment is much lower, especially when it comes to first-time homebuyers, whose average down payment ranges between 6% and 7%. Of course, putting at least 20% down on a home will increase your chances of getting approved for a mortgage at a decent rate, but there are other options. The minimum down payment required for a house varies depending on the type of mortgage. Some conventional mortgages, such as the Fannie Mae HomeReady and Freddie Mac Home Possible mortgages, require as little as 3% down. And let’s not forget that buyers have several loan options. For instance, many first-time buyers choose a Federal Housing Administration loan, which allows borrowers to put down as little as 3.5% on the purchase of a home.
Now that you know this, will you take the step to become homeowners this year?
We offer a free monthly class where we cover your financing options in more detail so you can know if this is the year you should become a homeowner. You can sign up here.