You might not need as much money as you think!
One of the biggest misconceptions for first-time homebuyers is how much you’ll need to save for a down payment. Contrary to popular belief, you don’t always have to put 20% down to buy a house. And if saving for a down payment is holding you back from buying a house, let’s talk about whether you CAN buy a house and put down less money.
A recent survey by Point2Homes mentions that 74% of millennials (ages 25-40) say they’re interested in purchasing a home over the next 12 months. The study notes, “88% say they have significantly less savings than the average national down payment amount, which is $62,600.”
Thankfully, $62,600 is not the amount every buyer needs for a down payment in the United States. There are many different options available, especially for first-time home buyers (a millennial or not). That amount can also be significantly less, depending on the purchase price of the house. Data from the 2020 Profile of Home Buyers and Sellers from the National Association of Realtors (NAR) actually indicates that the median down payment hasn’t been over 20% since 2005.
The median down payment for first-time homebuyers is closer to 7%. That’s a big difference! For repeat homebuyers, the down payment median nationally is 16%. There are many first-time homebuyer programs, which allow qualified buyers to purchase a home with a down payment as low as 3.5%.
According to the National Association of Realtors (NAR), “The median existing-home price for all housing types in August was $310,600.” (These are the latest numbers available). NAR also indicates that:
“In 2019, the median down payment was 12 percent for all buyers, six percent for first-time buyers, and 16 percent for repeat buyers. In 2020, the median was 12 percent for all buyers, seven percent for first-time buyers, and 16 percent for repeat buyers.”
That means if a qualified first-time buyer purchases a home at today’s median price, $310,600, with a 6% down payment, in reality, the down payment only amounts to $18,636. That’s nowhere near $62,600. Unfortunately for the Boston, San Francisco, and Los Angeles real estate markets, where Torii currently operates, home prices are much more than $310,600 on average. But even if you double the median price to $620,000, which is around the median price in the Boston area, you’re still only looking at a down payment of $37,000 – much less than the $62,600 previously mentioned.
Knowing there are also programs like FHA where the down payment can be as low as 3.5% of the purchase price for a first-time buyer, that up-front cost could be significantly less – as little as $10,871 for the same home noted above. There are also other programs like USDA and loans for Veterans that waive down payment requirements.
The Point2Homes study also shares how much millennials have indicated they’ve saved for a down payment. As we can see in the graph above, 39% have already saved enough for a down payment on a median-priced home. Another 47% are close to reaching that goal, depending on the purchase price of the home. Unfortunately, the lack of knowledge about the home buying process is keeping many motivated first-time buyers on the sidelines. But that’s where Torii comes in: A trusted agent and your lender can guide you through the process.
Be careful not to let big myths about home buying keep you and your family out of the housing market. You don’t always need 20% down, and there are many programs to help first-time home buyers get out of renting and into a home that they own.