Recently, I was sitting in on a first-time homebuyer webinar and was shocked at one of the statistics presented by the speaker. According to lpsos, a global market and opinion research specialty company, over 40% of the population believes a 20% down payment is required to purchase a new home. How can this be given that government-backed loan programs offered through the Federal Housing Administration (FHA), Fannie Mae, Freddie Mac, the Department of Veterans Affairs (VA) and the U.S. Department of Agriculture (USDA) allow borrowers to purchase a home with less than 20% down? In fact, all of these agencies have programs that allow for down payments of less than 5%. Statistics from the National Association of Realtors show that 94% of first-time homebuyers who financed their home in 2015 had an average down payment of just 6%.
There is no question that in today’s economic environment first-time homebuyers are facing difficult financial realities, including student loan debt and slow wage growth. In regards to home affordability, consumers are bombarded with negativity from the national media and are more cautious than ever. This has led many potential homeowners to convince themselves they cannot afford a home. However, saving enough cash for a down payment on a home purchase should not prevent them from becoming home owners. In many areas, rents are rising rapidly and a mortgage payment could be a better option.
We in the mortgage banking community need to debunk the 20% myth. As an industry, we must inform consumers of the educational options in their area, such as home buyer counseling and financial literacy programs – standard classes offered through state programs, individual lenders, and non-profit organizations. A more informed consumer is better for the market, rather than using fear tactics in the hopes only strong borrowers will still be motivated to buy. If you’re looking for a home buyer class, financial literacy program, or credit counseling, call your bank first. Together, we can find you the best path to homeownership.