With affordable loan options on the rise today, it’s somewhat surprising that Wells Fargo’s annual homeownership survey (released June 16, 2015) found that 36 percent of consumers believe that a 20 percent down payment is always required. Even more troubling, a higher proportion of African-Americans and Hispanics hold this belief, at 58 percent and 55 percent respectively.
What’s the reality?
RealtyTrac’s Home Purchase Down Payment Report (released June 3, 2015) showed the average down payment for single family homes, condos and townhomes purchased in the first quarter 2015 was 14.8 percent of the purchase price–a three-year low. The report also found that the average down payment for FHA purchase loans originated in the first quarter was 2.9 percent of the purchase price while the average down payment for conventional loans was 18.4 percent of the purchase price.
The share of low down payment loans — defined in the report as purchase loans with a loan-to-value ratio of 97 percent or higher, which would mean a down payment of 3 percent or lower — was 27 percent of all purchase loans in the first quarter, up from the prior quarter.
Our CEO, Rob Chrane was asked for a comment about the low down payment loans:
“While it’s good to see that the share of low down payment loans is gradually increasing, we’re concerned that many new buyers are unaware of options available to significantly reduce their down payment. Across the country, down payment program help averages almost $12,000. Even if a buyer has saved the minimum down payment, these additional benefits go a long way towards helping reduce out-of-pocket down payment and closing costs. Researching available low down payment loans and programs can make a material impact on a homebuyer’s finances for years to come. These programs can be paired with FHA or conventional first mortgages. Homebuyers can ask their Realtor and lender if they work with the state and local Housing Finance Agencies that provide these programs.”
There are many low down payment options available to today’s buyers, including 3 percent down payment loans and down payment and closing cost programs that can help buyers save even more. The Wells Fargo survey shows that consumers continue to overestimate what they need to qualify for a home loan and their awareness of different types of mortgages decreased from last year. We’ve got some educating to do on this front.