Be a down payment saver
Saving up for a down payment on a home can be tricky. In fact, it’s often the hardest step in the process of buying a home. That’s because you must tighten the financial belt and make sacrifices.
Some pros suggest putting down at least 20 percent. Those who put down less may face less favorable loan terms. Plus, they’ll have to pay private mortgage insurance (PMI). PMI safeguards the lender if you’re not able to pay your loan.
20 percent not necessary
But having one-fifth saved up isn’t mandatory. Many people are still able to buy with a down payment less than 20 percent. New data show that most buyers actually put down only about one-third that amount.
Learn the facts and check out loan programs that require a smaller down payment. It may put you on a faster track to owning than you think.Click to see your low-downpayment loan eligibility (Dec 10th, 2018)
New numbers on down payments
A new report by ATTOM Data Solutions had some interesting findings. In the third quarter of 2017:
- The median down payment for detached homes and condos bought with financing was $20,000. That’s up from $18,161 in the earlier quarter. A year earlier, that amount was $14,400.
- $20,000 is a 7.6 percent down payment. That’s based on the median sales price of $263,000 for financed home purchases. That mark is up from 7.1 percent tallied a quarter earlier, and 6.1 percent a year prior.
- The median down payment surpassed $50,000 in 12 of the 99 metro areas studied in the report. These pricey areas included San Jose, San Francisco, and Los Angeles, California, and Boulder, Colo.
Daren Blomquist, senior vice president for ATTOM Data Solutions, says the report underpins what we already know: home prices keep going higher. As a result, today’s buyers need to fork over a bigger down payment.
“There’s been a lot of talk about opening up ownership to first-time buyers. But this data shows the market is still tilted in favor of buyers with larger down payments,” he says. “This is evident in the record high dollar amounts seen in median down payments.”
A limited housing supply in many markets has led to two truths.
“First, the most qualified buyers with the largest down payments end up buying most of the homes for sale. Second, those with lower down payments are increasingly being left out in the cold. Or, they’re forced to get creative to cobble together a bigger down payment,” says Blomquist.
Put in football terms, “buying a house is a full-contact sport in today’s market,” he adds. “Those with beefy down payments have a better chance of not getting sacked and actually making it to the end zone.”
The positive takeaways
But this news doesn’t spell doom and gloom for first-timers. Blomquist says they’re responding to this challenge and finding ways to compete with rivals.
“The report shows that 23.4 percent of all purchase loan originations on homes bought in the third quarter involved co-borrowers,” says Blomquist. He notes that co-borrowers mean multiple, non-married borrowers on the loan documents. For example, a parent and child, or two siblings. That’s up from 22.8 and 22.1 percent, respectively, in the quarter prior and year prior.
“The highest share of co-borrowers tended to be in high-cost cities. That’s where the competition is fierce and median down payments are sky high,” he adds. These cities include San Jose (51.1 percent co-borrowers); Miami (42.7 percent); and Seattle (36.7 percent co-borrowers).
Blomquist sees a silver lining in the rise of co-borrowers.
“This indicates more buyers are getting creative to get to 20 percent down and avoid PMI,” he says. “I also think we’ll see more innovation in the industry to help borrowers avoid PMI in the future.”
Hope springs eternal
Blomquist sees other hope on the horizon, too.
“It will likely be another year of escalating down payment percentages before we see relief,” says Blomquist. “Credit may loosen in the coming months. And the gradual pick up in housing starts we’re seeing indicates the inventory logjam will eventually break up.”
And that will help to ease the imbalance between supply and demand.
“It’s this imbalance that’s forcing buyers to up the ante when it comes to down payments in order to compete,” he notes.
What you can do now
Don’t have 20 percent saved? Don’t let that get you down.
“The average down payment has consistently been below the 20 percent threshold historically. That means that this is somewhat normal,” says Blomquist. “It’s part of the cost of getting your foot in the door with home ownership.”
To help with down payment matters, try these tips:
- Research down payment assistance programs available. The Mortgage Reports Down Payment Assistance Guide offer links to many programs.
- Check out low down payment mortgage options, like the FHA’s 3.5 percent home loan.
- Create and stick to a budget. “Know where all of your money is going each month,” he says. “Then, identify opportunities to cut down on other areas of spending that are luxury or wasteful. These can be put toward saving for the down payment.”
- Consider living with family or friends for at least a short period of time. “This can save on rent costs,” says Blomquist.
- Get a co-borrower to go in on the loan with you. Talk to a mortgage expert about this option.
What are today’s mortgage rates?
It’s a fact that those who put more money down get the best mortgage rates. However, there are discounted programs available to those with moderate or low incomes. These include Fannie Mae’s HomeReady and Freddie Mac’s Home Possible. Both programs offer more flexible underwriting and less-expensive PMI for those who qualify.Click to see your low-downpayment loan eligibility (Dec 10th, 2018)