Friday, February 10, 2017 / by Paul Wolfert
Dissecting the 20% Down Payment Myth
By: Paul Wolfert
It turns out that the crazy amount of home sales happening nationally and here in Michigan have been chugging along at a good clip despite some huge things working against them.
At least that’s what I managed to take away from last month’s Aspiring Home Buyers Profile report. Not the most captivating thing to read. Trust me.
Aside from it nearly putting me to sleep, it did shed light on one obvious and one not-so-obvious widespread belief among would-be future homeowners. Curious? Good.
Home buyers are always a nice mix of current homeowners (who will usually also be selling) and first-timers.
Among those first-timers, a major drag on their willingness and ability to buy their own pad here in the “mitten” is student debt.
A virtual landfill worth has been written about that in recent years so it’s hardly a surprise that 39% of non-owners said that student loan payments are the primary reason they weren’t planning on buying anytime soon. Yikes! That's still not the surprising part.
What I DIDN’T expect was the number of current non-owners whose reasons are based on a nasty chunk of bad info.
Apparently, the same percentage—39%—were convinced that they need more than 20% of the price of a home to qualify for a loan. Lies.
Another 26% believe a purchase is only going to happen if they have 15%-20% socked away—and a majority of the remainder (another 22%) think they need at least 10% - 14%.
The chief economist for realtor.com summed it up like this:
“Aspiring buyers think it takes twice as much to buy a home” as it actually does in most cases. Although the actual numbers for any home purchase in Michigan always depend on the details of the particular situation, the actual national averages will come as a shock to most.
According to the latest National Association of Realtors® survey, the average down payment on a purchase mortgage was only 11% in 2016.
That’s the average—in many cases, it was much..much lower. On Friday, CNBC’s Diana Olick quoted
I’ve helped buyers purchase a home anywhere from 0-3% down.
That’s a grand canyon sized gap between common belief and current reality—one with real world implications.
After all, if you assume a down payment has to be twice the amount actually required, it probably means you won’t even bother thinking about buying a house until long after you might have been able to get started.
That could mean thousands of rent dollars taken from what could have been spent on paying for something that’s actually yours.
Long term, the difference would be huge.
If you’re considering becoming homeowner in Michigan or keep putting off even thinking about it because of myths, I hope I just busted ‘em and you’ll text, call or email me soon! 734-743-1482 or email@example.com
There is never any obligation, of course—and the old saying is absolutely true in this case: it can’t hurt to ask!