In my years as a Realtor, I’ve had the pleasure of working with many different types of clients – from young people looking to purchase their first home to older people hoping to find a smaller, more manageable property.
While every situation is different, the one thing I’ve found to be universally true is the misconception of the size of the down payment buyers need to make to purchase a home.
This confusion often causes some aspiring buyers to delay their property purchase. This week, I hope to offer helpful and informative advice to buyers thinking of entering the market.
First of all, don’t fret; you’re not alone in having questions regarding the down payment process. In fact, a recent study by the National Association of Realtors shows that 35% of consumers believe they need a down payment of 16-20% of the purchase price when buying a new home. Ten percent believe they need more than 20%.
That means nearly half the buyers in the national market believe their hopes to become homeowners might be unachievable.
Accompanying this data, you might have noticed that the percentage of increase in the price of homes has reached double digits over the past year, which makes saving for such a large down payment an even tougher hurdle.
The good news provided by Jessica Lautz, NAR’s vice president of demographics and behavioral insights, is that the typical down payment is much lower than most might think. For first-time homebuyers, the average down payment over the last three years has ranged between 6% and 7%.
For sellers who decided to become buyers again in 2021, the typical down payment was 17%. Down payments among these buyers have been on the rise over recent years. This stems from the increased home equity that homeowners roll into buying their next home.
While a 17% down payment seems out of reach for first-time homebuyers, homeownership is about building equity. In time and by making wise decisions in purchasing a home, buyers can be well on their way to overcoming the above mentioned down payment hurdle.
Buyers, be sure to do your homework because you have several loan options available. For instance, about 23% of first-time buyers represented in the survey chose a Federal Housing Administration loan.
Despite the current challenging and competitive market conditions, FHA loans remain a very accessible way for first-time buyers to enter the market, as they allow borrowers to put as little as 3.5% down on the purchase of a home.
While it might be tempting to take a wait-and-see approach when entering the housing market, buyers need to monitor the rising interest rates, as an increase in rates might put your dream home out of range.
For example, a half percent increase in interest rates might not sound like a lot, but it could mean the difference in the price point of the home a buyer could comfortably afford. Home prices will conceivably continue to increase in most markets, so the time to act might be now given the historically low interest rates we’re still enjoying.
There’s a great tool for potential buyers who want to learn more about the loan process. HUD.gov is an interactive site that can direct the user to state and local lending programs for which they might qualify when purchasing a new home.
Another great way to educate yourself is to talk with a mortgage lender. Lenders can assist potential buyers with the loan options that best suit their needs and circumstances.
Entering the market might seem like an overwhelming process, but I hope the information I’ve provided will be helpful. A wise man once said, “Property is surely a right of mankind as real as liberty.”
This is why it’s crucial to utilize the skills and expertise of a Realtor. A Realtor will work with you to help make sure your housing needs are met and that you get the most out of your investment. That’s Who We R.
Founded in 1912, Greater Chattanooga Realtors is a regional organization with more than 2,500 members servicing Hamilton and Sequatchie counties in southeast Tennessee and Catoosa, Dade and Walker counties in northwest Georgia. The association is one of approximately 1,100 local associations and boards of Realtors nationwide that comprise the National Association of Realtors. Greater Chattanooga Realtors owns and operates a multiple listing service that is one of approximately 600 MLSs in the country and that services more than 2,700 MLS users.