If you're planning to buy your first home, then you're probably focused on saving for all the costs involved in such a big purchase. One of the expenses that may be at the top of your mind is your down payment. If you’re intimidated by how much you need to save for that, it may be because you believe you must put 20% down. That doesn’t necessarily have to be the case. As the National Association of Realtors (NAR) notes:

“One of the biggest misconceptions among housing consumers is what the typical down payment is and what amount is needed to enter homeownership.”

And a recent Freddie Mac survey finds:

“. . . nearly a third of prospective homebuyers think they need a down payment of 20% or more to buy a home. This myth remains one of the largest perceived barriers to achieving homeownership.”

Here’s the good news. Unless specified by your loan type or lender, it’s typically not required to put 20% down. This means you could be closer to your homebuying dream than you realize.

According to NAR, the median down payment hasn’t been over 20% since 2005. In fact, the median down payment for all homebuyers today is only 14%. And it’s even lower for first-time homebuyers at just 6% (see graph below):

What does this mean for you? It means you may not need to save as much as you originally thought.

Learn About Options That Can Help You Toward Your Goal

And it’s not just how much you need for your down payment that isn’t clear. There are also misconceptions about down payment assistance programs. For starters, many people believe there’s only assistance available for first-time homebuyers. While first-time buyers have many options to explore, repeat buyers have some, too.

According to Down Payment Resource, there are over 2,000 homebuyer assistance programs in the U.S., and the majority are intended to help with down payments. That same resource goes on to say:

“You don’t have to be a first-time buyer. Over 38% of all programs are for repeat homebuyers who have owned a home in the last 3 years.”

Plus, there are even loan types, like FHA loans with down payments as low as 3.5% as well as options like VA loans and USDA loans with no down payment requirements for qualified applicants.

If you’re interested in learning more about down payment assistance programs, information is available through sites like Down Payment Resource. Then, partner with a trusted lender to learn what you qualify for on your homebuying journey.

Bottom Line: A 20% down payment isn’t always required. If you want to purchase a home this year, let’s connect to start the conversation about your homebuying goals.

Weekly Update | June 12, 2023

Interest Rates Up Slightly

An unusually quiet week for economic news and housing data saw mortgage interest rates rise slightly. More significant rate movement was expected this week following the release of May’s Consumer Price Index (CPI) report and the latest Federal Reserve announcement. Economic data is one of the most important influences on the bond market, which determines day-to-day rate movement. Weak economic numbers typically push rates downward, and this was the case following Thursday’s Weekly Jobless Claims report. Initial filings for unemployment benefits totaled a seasonally adjusted 261,000 for the week ending June 3—well ahead of the Dow Jones estimate of 235,000 and the highest amount since late October 2021. Earlier in the week, rates moved upward following the Bank of Canada’s rate hike announcement. The bank raised its overnight rate to a 22-year high of 4.75%. The move was in response to surprisingly strong consumer spending, a pick-up in housing activity, and a tight labor market. This week’s CPI report will be one of the highly anticipated of the month. April’s reading of 4.9% marked the 10th consecutive month that the index slowed. While economic forecasters are predicting that inflation will continue to fall, it is not clear when it will drop to the Federal Reserve’s target of 2%. [Note: today's report showed May's annualized inflation at 4%, a sharp drop from April's 4.9%, and slightly lower than expected-jw] The U.S. central bank will hold its next meeting June 13 and 14. At its May gathering, the Fed raised its benchmark rate for the 10th time in 14 months. But the biggest headline to come out of the last meeting was not the rate increase but the central bank removing previous language—specifically, the phrase “some additional policy firming may be appropriate”—that signaled future rate hikes. Many economists believe that with inflation and the labor market showing signs of cooling, officials will halt the rate increases. Otherwise, they will raise the benchmark rate again, despite the growing risk that the move will trigger a mild recession. Monday’s ISM Services Index revealed that economic activity in the services sector expanded in May for the fifth consecutive month. The index reading of 50.3 was down slightly from April’s 51.9. The sector has grown in 35 of the last 36 months with the lone contraction coming in December of last year. Wednesday’s Weekly Mortgage Applications Survey from the Mortgage Bankers Association revealed that applications fell 1.4% from one week earlier. The Refinance Index was down 1% on a weekly basis and 42% lower than one year ago. Meanwhile, the seasonally adjusted Purchase Index decreased 2% for the week.

smorrison@berkshirebank.com

 

Buying your first home is an exciting decision and a major milestone that has the power to change your life for the better. As a first-time homebuyer, it’s a vision you can bring to life, but, as the National Association of Realtors (NAR) shares, you’ll have to overcome some factors that have made it more challenging in recent years:

 

“Since 2011, the share of first-time home buyers has been under the historical norm of 40% as buyers face tight inventory, rising home prices, rising rents and high student debt loads.”

That said, if you’re looking to purchase your first home, here are two things you can consider to help make your dreams a reality.

Save Money with First-Time Homebuyer Programs

Being able to pay for the initial costs and fees associated with homeownership can feel like a major hurdle. Whether that’s getting a loan, being able to put together a down payment, or having money for closing costs – there are a variety of expenses that can make buying your first home feel challenging. 

Fortunately, there are a lot of public and private first-time homebuyer programs that can help you get a loan with little-to-no money upfront. CNET explains:

 

“A first-time homebuyer program can help make homeownership more affordable and accessible by offering lower mortgage rates, down payment assistance and tax incentives.” 

In fact, as Bankrate says, many of these programs are offered by state and local governments:

 

“Many states and local governments have programs that offer down payment or closing cost assistance – either low-interest-rate loans, deferred loans or even forgivable loans (aka grants) – to people looking to buy their first house . . .” 

To take advantage of these programs, contact the housing authority in your state and browse sites like Down Payment Resource.

The Supply of Homes for Sale Is Low, So Explore Every Possibility

It’s a sellers’ market, meaning there aren’t enough homes on the market to meet buyer demand. So, how can you be sure you’re doing everything you can to find a home that works for you? You can increase your options by considering condominiums (condos) and townhomes. U.S. News tells us these housing types are often less expensive than single-family homes:

 

“Condos are usually less expensive than standalone houses . . . They are also less expensive to insure.”

One reason why they may be more affordable is because they’re often smaller. But they still give you the chance to get your foot in the door and achieve your dream of owning and building equity. Beyond that, another major perk is they typically require less maintenance. As U.S. News says in the same article:

 

“The strongest reason for purchasing a condo is that all external maintenance is usually covered by the condo association, such as landscaping, pool maintenance, external painting, paving, plowing and more. This fee also covers some internal maintenance, such as gas, electric, plumbing, HVAC and other mechanical systems.” 

Townhomes and condos are great ways to get into homeownership. Owning your home allows you to build equity, increase your net worth, and can fuel a future move.

The best way to make sure you’re set up for success, especially if you’re just starting out, is to work with a trusted real estate who can educate you on the homebuying process, help you understand your local area to find options that are right for you, and coach you through making an offer in a competitive market.

Bottom Line

Today’s housing market provides some challenges for first-time homebuyers. But, there are still ways to achieve your goals, like utilizing first-time homebuyer programs and considering all of your housing options. Let’s connect so you have an expert on your side who can help you navigate the process.