Final 3 Down Payment Program Myths Debunked
We all know April is tax month, but did you know it’s also Financial Literacy Month? Maybe you’ve got the basics of budgeting and saving down, but you’re unsure of the steps you need to take to reach your longer term financial goals.
One of the biggest financial decisions you’ll make in your life is buying a home. It’s a top goal for the majority of millennials. More than nine of out 10 renters ages 25 to 34 aspire to own a house, according to Fannie Mae’s National Housing Survey. But, in a Zillow survey, renters said they view saving for a down payment as the top barrier to homeownership.
However, the larger problem may be that many aspirational homebuyers are actually down payment illiterate. What do we mean by that? It means you aren’t sure of the down payment requirement or options when buying a home. For example, do you think 20 percent down is required? You’re not alone—39 percent of non-homeowners think they need more than 20 percent down for a home purchase. (The truth is that there are many low down payment options available and the average down payment for a first-time homebuyer today is just 6 percent.)
One homebuyer recently told us that he planned to cash out his 401k to come up with his down payment. Both are misunderstandings about down payments could set you back from your longer term goals.
We’re seeing a growing interest in financial topics, resources and early research. Today, more homebuyers are doing online research before engaging with an agent or lender.
Homebuyer education is another critical step. Most education is required if you use a down payment program. But, it’s a resource that can benefit all types of buyers. In a recent Down Payment Resource survey of future homebuyers, 72 percent of the respondents said they plan to complete an online or in-person homebuyer education course.
You’ll walk away understanding the complete home buying process, how to budget and common pitfalls to avoid. Today, you’ll find both in person (classroom setting) or online options to choose from.
To be down payment literate, means you know you have options. What down payment is best for you depends on many factors. While 20 percent down isn’t required, it could be the better option for you, or maybe not. If takes you 5 more years to save for the 20 percent down, all while your rent increases, then it may be advantageous to buyer sooner and use a low down payment loan. Plus, you may qualify for a program that can help with your down payment and/or closing costs. In our survey of future and recent buyers, more than 90 percent said they wanted information on programs from their agent or lender.
Most homebuyers don’t know there are more than 2,500 different programs available across the country. A national survey by NeighborWorks America found that 71 percent of Americans are not aware of or unsure about the down payment assistance open to middle class homebuyers. Homebuyer programs can be used with both low down payment and conventional loans.
Before you cash out your 401k or other retirement investments for a down payment, put on the breaks and consult with your lender, financial advisor or nonprofit that offers loan counseling. There are often more options for your down payment that won’t deplete your retirement savings.
While your home purchase can also be a long-term wealth builder, it’s first and foremost your home and your community. It’s important to diversity your investments. So, keep your 401k and let it continue to grow. Find out if you may qualify for a homebuyer program that could help fund your down payment. There are also tax credit programs that can help you save over the life of the loan.
The good news is there are many online resources to help you increase your financial (and down payment) literacy.
Here are few to try during Financial Literacy Month: