Yes, the 20%-downpayment era is over. For example, the National Association of Realtors recently revealed that median down payment among homebuyers in 2017 is 10%. This has been the trend for five years, according to MarketWatch.
Some consumers, however, remain unaware of low down payment mortgages or the existence of down payment assistance programs. This confusion is evident in NeighborWorks America’s National Housing Survey that explores common hurdles to homeownership.
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The Down Payment Debacle
“The confusion about minimum down payment requirements is compounded by a general lack of awareness about assistance programs. Approximately 73 percent of all consumers and 62 percent of millennials say they are not aware or are unsure about down payment assistance programs in their communities for middle-income homebuyers.” — NeighborWorks America.
At least 70% of adults in the survey said they don’t have enough money saved for a down payment. The younger ones took this belief further, saying that a higher amount of 25% is required for a down payment.
What these respondents missed, as the nonprofit organization pointed out, is that down payments can go as low as 3.5% of the home’s purchase price. This is the standard for FHA loans; the VA and USDA have loans with 0% down.
Making things more confusing is the respondents’ general lack of knowledge on DPA programs. Of the respondents who said they’ve heard of these programs, 53% said they have received little to nothing at all information.
Of Student Loans and Credit Scores
Runners-up to down payment issues that prevent adults and millennials alike from owning a home are credit scores and student loans, respectively.
Seventeen percent (17%) of adult respondents and 22% of millennial respondents thought their credit scores bar them from homeownership.
This somehow runs opposite to data as of April 2017 showing steadily improving credit scores among Americans. NeighborWorks notes that the median FICO score is 700, “well above the mortgage-qualifying rate of 620 published by many mortgage lenders and government-sponsored enterprises”. Credit score as a homebuying obstacle is also more prevalent among non-white respondents (21%).
Moreover, one out of four Americans owe student loans and more than 50% of millennials surveyed carry this burden. While student loan balances remained flat in the second quarter of 2017, total outstanding student debt stood at $1.34 trillion, according to the New York Fed.
“When asked to rate where student loan debt standards as an obstacle to homeownership, using a scale of 1-10 (with the latter being the most onerous), nearly 18 percent of both the total adult population chose either nine or 10,” the survey revealed.
The same with people who are confused about down payments, respondents with student loans and credit scores are also not familiar, if at all, of help available for them.
NeighborWorks believes this is a perfect opportunity for nonprofit organizations offering homebuying assistance to expand their reach to more consumers. The NeighborWorks survey was conducted among 1,000 adults (18 and above) with a separate sample for 500 millennials (18-34).