Saving For A Down Payment? Here’s What You Need To Know.

If you’re planning on buying your first home, you’re probably focused on saving for all the costs involved in such a big purchase. One of the expenses that may be at the top of your list is the down payment for the home itself.

What is a down payment? A down payment is a sum a buyer pays upfront when purchasing an expensive good such as a home or car. It represents a percentage of the total purchase price, and the balance is usually financed.

If you’re intimidated by how much you need to save for your down payment, it may be because you believe you must put 20% down. This is a very common misconception and doesn’t necessarily have to be the case.

As the National Association of Realtors (NAR) notes:

“One of the biggest misconceptions among housing consumers is what the typical down payment is and what amount is needed to enter homeownership.”

And a recent Freddie Mac survey finds:

“. . . nearly a third of prospective homebuyers think they need a down payment of 20% or more to buy a home. This myth remains one of the largest perceived barriers to achieving homeownership.”

Here’s the good news: unless specified by your loan type or lender, it’s typically not required to put 20% down. This means you could be closer to your homebuying dream than you realize. According to NAR, the median down payment hasn’t been over 20% since 2005. In fact, the median down payment for all homebuyers today is only 14%. And it’s even lower for first-time homebuyers at just 6%.

But what does this mean for you? It means you may not need to save as much as you originally thought.

There are many other misconceptions about down payments as well; not just the percentage. There are also misconceptions about down payment assistance programs. Many people believe there’s only assistance available for first-time homebuyers. While first-time buyers have many options to explore, repeat buyers have some, too. According to Down Payment Resource, there are over 2,000 homebuyer assistance programs in the U.S., and the majority are intended to help with down payments.

That same resource goes on to say:

“You don’t have to be a first-time buyer. Over 38% of all programs are for repeat homebuyers who have owned a home in the last 3 years.”

Plus, there are even loan types, like FHA loans with down payments as low as 3.5% as well as options like VA loans and USDA loans with no down payment requirements for qualified applicants.

Remember: a 20% down payment isn’t always required. Becoming a homeowner could be nearer in your future than you were anticipating.

Sources:

www.nar.realtor, www.myhome.freddiemac.com, www.investopedia.com