Have you considered purchasing a home, but the thought of saving for the down payment seemed too daunting? You are not alone.
A recent Freddie Mac survey found that nearly a third of prospective homebuyers think they need to put down 20% or more to buy a home. With this perception, it's no wonder that down payments are often viewed as one of the largest barriers to achieving homeownership. Whether it's the amount of money needed, the source of the necessary funds or the fear of tackling it alone, down payments can be intimidating for many potential homebuyers.
So how are new homeowners doing it? Our May Insight looks at down payment sources over the past few years, showing that are options available to help you bridge a down payment gap.
The National Association of Realtors® reports that the average down payment for first-time homebuyers is actually 7%. Also, options like Freddie Mac's Home Possible® mortgage allow qualified borrowers to put down as little as 3%. Lower down payments help expand homeownership opportunities for all types of buyers.
While the majority of buyers use personal savings to finance down payments, there are many other options. The National Survey of Mortgage Originations lists proceeds from a previous sale, loans from government or nonprofit organizations and gift money from family and friends as popular alternatives to personal savings.
All by Yourself?
Anything can be challenging when it's done alone. That's why potential homeowners often look to their families and friends for assistance. Beyond providing a gift toward the down payment, relatives can also help homebuyers by co-signing the mortgage loan or listing themselves as a co-borrower. In recent years, the share of young adult borrowers (25-34) with an older co-borrower (55+) has been on the rise, particularly among first-time buyers and those living in high-cost areas.
Additionally, assistance or a loan from a nonprofit or government agency to pay for a down payment has increased. While 5% of homebuyers used such assistance for a down payment in 2013, the share grew to 10% in 2016.
In the end, maybe saving for a down payment isn't that daunting. With low down payment options, numerous financial resources and additional assistance, the dream of homeownership can become a reality quicker than you may have thought.