Derek English: How Much Do You Need For A Down Payment? Probably Less Than You Think


Wednesday, January 26, 2022 – by Derek English, president, Greater Chattanooga Realtors

In my years as a realtor, I’ve had the pleasure of working with many different types of clients; from young people looking to purchase their first home, to older people who are looking to find a smaller more manageable property. Of course every situation is different, but one thing I have found to be true is the misconception in the amount of a down payment buyers really need to purchase a new home. This confusion often causes some aspiring buyers to delay their property purchase. My hope for this week’s article is to offer helpful and informative advice to those buyers thinking of entering the market. 

Do not fret, you are not alone in having questions regarding the down payment process.

In fact, a recent study by the National Association of Realtors shows that thirty-five percent of consumers believe they need a down payment of 16 percent to 20 percent of the purchase price in considering their purchase of a new home. Ten percent believe they need more than 20 percent for a down payment to purchase a new home. That is nearly half the buyers in the national market believing their hopes to become homeowners may be unachievable. Accompanying this data, you may have noticed that home price percentages have increased into the double digits over the past year which makes saving for such a large down payment an even tougher hurdle.

The good news provided by Jessica Lautz, NAR’s vice president of demographics and behavioral insights, is that the typical down payment is much lower than some might think. For first-time home buyers, the average down payment over the last three years has ranged between 6 percent and 7 percent.

For sellers who decided to become buyers again in 2021, the typical down payment was 17 percent. Down payments among these buyers have been on the rise over recent years. This stems from increased home equity that previous homeowners, turned repeat home buyers, roll into buying their next home. While 17 percent may be a down payment that seems out of reach for the first-time home buyer, homeownership is about building equity. In time and by making wise decisions in purchasing a home, buyers can be well on their way to overcoming the above mentioned down payment hurdle. 

Buyers, be sure to do your homework, because you have several loan options available. For instance, about 23 percent of first-time buyers represented in the survey chose a Federal Housing Administration loan. Despite the current challenging and competitive market conditions, FHA loans remain a very accessible way for first-time buyers to enter the market as they allow borrowers to put down as little as 3.5 percent on the purchase of a home.

While it might be tempting to take a wait-and-see approach when entering the housing market, buyers need to be monitoring the rising interest rates as an increase in rates might put your dream home out of range. For example, a half percent increase in interest rates might not sound like a lot, but it could mean the difference in the price point of the home a buyer can comfortably afford. Home prices will conceivably continue to increase in most markets and with historically low interest rates, the time to act might be now.

There’s a great tool for the potential buyer who is wanting to learn more about the loan process. Visit HUD.gov for an interactive site that can direct the user to state and local lending programs that they may qualify for in purchasing a new home. Another great way to educate yourself is to talk with a mortgage lender. Lenders can assist potential buyers with different loan options that can best suit their needs and circumstances. 

Entering the market might seem like an overwhelming process, but I hope the information provided has been helpful. A wise man once said, “Property is surely a right of mankind, as real as liberty.” This is why it is so crucial to utilize the skills and expertise of a realtor. A realtor will work with you to help make sure your housing needs are met, while getting the most out of your investment. That’s Who We R.

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