The amount of cash needed to purchase a home usually isn’t as large as many people think, but misconceptions about how much money a down payment requires could be keeping some buyers on the sidelines.
The National Association of Realtors reports the median down payment among first-time buyers has stood at 6 percent of a home’s value for the past three years. But a disconnect exists between reality and would-be buyers’ perceptions. A recent study by NAR found four of 10 non-homeowners think they need 15 percent or more of the purchase price as a down payment to buy real estate.
That would be quite a chunk of change, considering the U.S. median home price in June hit a record high of $263,800. It would take most Americans a long time to save 15 percent – nearly $40,000 – and that’s not counting closing costs and other expenses related to purchasing a home. In the same survey, 70 percent of non-homeowners said a reasonable down payment would be 10 percent or less – still quite a bit of cash.
A number of loan programs exist that require little or no money down. A housing counselor can help would-be buyers find out more about their options. The Consumer Financial Protection Bureau maintains a list of HUD-approved housing experts that offer pre-purchase counseling free of charge.
Working with a home loan expert who knows the local market is another good way to find out about loans and loan programs, said Ron Wivagg, National Sales Support manager for Prosperity Home Mortgage, LLC, a full-service mortgage banker and wholly owned subsidiary of The Long & Foster Companies.
Prosperity recently launched HomeBuyer Boost, a program that offers qualified buyers assistance with closing costs, up to 97 percent financing, reduced mortgage insurance, and other favorable conditions meant to help purchasers who need a leg up.
A mortgage consultant can also help home buyers look around for options that might be appropriate for their situations, such as U.S. Department of Agriculture loans that help low- and moderate-income buyers in rural areas, or state and local grants to help local homebuyers who qualify for help, Wivagg said.
“You should always contact your county authority and look for those types of opportunities,” he said, offering two examples: Maryland’s SmartBuy program that helps qualified buyers eliminate student loan debt, and in Prince George’s County, Maryland, a down-payment assistance program called Pathway to Purchase.
Even with conventional financing, down payments can be as low as three percent, although mortgage insurance would be required for someone putting down less than 20 percent of the home’s appraised value. Some programs mitigate the cost of mortgage insurance for buyers who qualify.
Wivagg said anyone who is serious about buying a home but is nervous about the costs involved could start with getting pre-approval, which entails looking at their financial picture. Then they can start looking at financing programs that match their needs.
“There are a lot of people who are willing to help,” he said. “Especially for the first-time homebuyer, you want that local person who really knows the market.”