You Don’t Need a 20% Down Payment to Buy a Home: Let’s Bust the Myth

How to save for a Down Payment: Myths & Truths

According to the National Association of Realtors, the most challenging part in the homebuying process is saving for a down payment. HouseLogic.com, which is NAR’s site for homeowners, recently reported that the 20 percent down payment requirement is “one of the biggest misconceptions in home buying. Let’s try to bust that myth.

The 20% Down Payment Misconception

The average down payment for first-time homebuyers in 2021 was 12 percent of the purchase price, according to NAR. The average down payment amount for first-time buyers was 6 percent. Just over one-third of all buyers purchased using an FHA loan, which requires a 3.5 percent down payment. The Veteran’s Administration and USDA both offer zero-down loans. 

Freddie Mac and Fannie Mae both offer products that require just 3 percent down under the HomeReady and Home1 programs for first time buyers. Keep in mind that not all lenders carry the same loans. The key to being a savvy shopper is to remember that even if two lenders carry the same products, they may not price them the same and even more important than pricing for first time buyers is the process. If a lender gives you a great rate but is not available to guide you through the process and you don’t get to settlement on time then how important is that rate? Chose someone who will be responsive at all times (Real Estate is NOT a 9-5 endeavor) and will lead you through the process and allows you to understand the different options available to you.

In addition to saving for the down payment, buyers also should consider the closing costs associated with purchasing. In Center City Philadelphia, where the average existing-home sales price is just around $435,000 according to Realtor.com, buyers can expect to pay a minimum of around $4,000 to $5,000 for loan and appraisal fees, homeowner’s insurance and other related costs. Add to that the escrow of 14 months of taxes and a transfer tax of 2.139%

Where to Find the Money for your Down Payment

Aside from hitting the lottery, a better route would be to procure gift funds from friends, family, or employers. Some nonprofits provide down payment assistance. Borrowing from retirement accounts is another alternative, but make sure you read up on any possible penalties you could incur in connection with the withdrawal. Your income tax refund, if you’re lucky enough to receive one, may do the trick as well.

Another method of reducing the amount of upfront money is to ask the seller to pay your closing costs often referred to as Seller’s Assist, which would reduce or eliminate the cash required to complete the purchase. Keep in mind that there’s no free lunch. You could have purchased the property for that much less had you not asked for the concession and in this current market environment sellers are still reluctant to give larger assists as the property must appraise for that amount. essentially, you’re financing that much more in exchange for lower out-of-pocket costs.

Different municipalities and states sometimes have grants and programs that allow you to either finance the closing costs or will give you an outright grant of some of the funds needed. Be careful though, most of those programs do come with income restrictions or requirements to live in the property for up to 15 years.

Article Written By: Kevin Berju, Branch Manager AFN

www.PhillyMortgageTeam.com 215-681-3587

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Kevin Berju starts Philly Mortgage Team with over 25 years in the mortgage industry. Prior to working with residential and commercial mortgages, Kevin graduated with a business degree from Temple University, owned his own business, and worked as an agent for years in both commercial & residential Real Estate. With Kevin’s diverse knowledge of the real estate and mortgage industries, his clients are thoroughly guided throughout their home buying or refinance process. As a result of his knowledge, attention to detail, responsiveness to his clients, and exceptional work ethic, Kevin was awarded the Five Star Mortgage Professional recognition in Philadelphia Magazine for the past successive years as well as reaching the top 1% of all originators country wide since 2012 as designated by Mortgage Executive magazine.

As a mortgage professional for over 2 decades, Kevin is an invaluable resource for both first-time and experienced home buyers. With his accomplishment of the Certified Mortgage Planning Specialist designation, Kevin is placed in an elite group of the top 5% of mortgage professionals in the industry. Looking to Purchase or Refinance in Pennsylvania, New Jersey, or Florida? Kevin Berju is the Lender for You!

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