Homebuyers still believe a 20% down payment is a necessity
Owning a home is the cornerstone of the American dream, but potential first-time buyers must overcome many obstacles to achieve this goal.
But a recent survey of LendingTree found that these were not just obstacles people had to overcome, but also misconceptions. The most important finding found by the study is that the majority of respondents insisted on saving for a down payment, with many additionally believing that they had to reach a certain threshold before even starting their job search. a house.
According to LendingTree’s Senior Economist Jacob Channelthe 20% down payment once required is now more of a suggestion than a rule and there are opportunities to secure mortgages for a fraction of that.
“There’s no magic number to determine how much someone should pay for a down payment,” Channel says. “Twenty percent is often thought of as ideal, but most people are getting close to 10% or less, which shows you can still get approved for a mortgage even if you can’t get to 20%.
Key takeaways from the report include:
- Down payments hold back a lot of home ownership. 81% of potential first-time buyers are stressed about making a down payment. Additionally, 27% of those who have never owned a home but would like to say that the down payment is the biggest barrier to homeownership. Another 49% say down payments are one of many obstacles.
- Misconceptions about how much a consumer should put on can be an additional barrier. More than a third of Americans – and 41% of those who have never owned a home – believe they need to put 20% aside to buy a home. However, an April 2022 report from the National Association of Realtors found that 44% of homebuyers deposited less than 20%.
- Private Mortgage Insurance (PMI) can be confusing and many Americans (60%) don’t know how to get rid of it. This may be because the rules vary by lender. For example, some lenders will remove the PMI upon request once your loan balance reaches 80% of the purchase price of the home, while other lenders will ask you to refinance first. Yet 50% of Americans don’t want to deposit less than 20% because they don’t want to owe PMI, which is required for lower down payments.
- Nearly a quarter (24%) of homeowners say their loved ones helped them with their down payment, either in the form of a gift (16%) or a loan (8%). That figure jumps to 37% among millennial homeowners. Of those who have never bought a home but hope to, 21% expect financial help from family or friends.
- Nearly 30% of potential first-time buyers hope to fund their down payment with a personal loan, but most lenders won’t allow it. Personal loans are prohibited as a down payment source for conventional and Federal Housing Administration (FHA) mortgages.
Click here to view the full report.