Half of Home Buyers Fret About Down Payments

According to a new study, more than half of Americans who have or plan to purchase a home admit they’re concerned about the ability to afford a home in the current market. The study is based on a survey of 1,000 consumers and was released by national online lender Laurel Road. One of the biggest barriers to affordability, respondents said, is the down payment.

Nearly half—or 46 percent—of Americans say they are unfamiliar with alternative down payment options, according to the survey. Nearly three in five respondents plan to put down a traditional 20 percent down payment. Some may feel like they have no other choice. However, the median down payment for first-time buyers in 2017 was 6 percent of the total home price, according to the National Association of REALTORS®.

Source: Laurel Road Bank

Best Tip to First-Time Buyers: Act Fast!

A shortage of homes for sale and rising home prices are making it challenging for first-time buyers, in particular, this spring. For those who want to land a home, urge them to move fast and be less picky.

The price of an existing home in March was about $250,000, up nearly 6 percent from a year ago, according to the National Association of REALTORS®. Homes are selling in about a month.

Home buyers needn’t wait for a 20 percent down payment. More than half of first-time buyers make down payments of 6 percent or less, according to NAR data from 2017. Both Freddie Mac and Fannie Mae support home loans to eligible buyers who put down as little as 3 percent on a home purchase, as does the FHA.

Source: “First-Time Home Buyers Learn to Move Quickly in Tight Markets,” The New York Times (May 11, 2018)

Survey: Home Owners Worried, Buyers Excited

Consumer sentiment is following an unusual trend for a seller’s market: Home buyers are upbeat, but homeowners are less so, according to ValueInsured’s latest quarterly survey of about 1,600 consumers. Why the divergence between buyers and owners? Some homeowners may feel stuck, while buyers are anxious to jump into real estate before home prices and mortgage rates rise further.

Fifty-eight percent of homeowners surveyed say they want to sell but are holding off because they don’t want to purchase again at today’s higher prices. Fifty-nine percent of owners say they believe buyers in their area are overpaying for a home, according to the survey.

Buyers still have plenty of concerns, such as saving for a down payment and eroding housing affordability, particularly in the nation’s hottest housing markets. Some say they are ready to make some sacrifices to afford their first home.

We suggest you view charts and data at: ValueInsured Modern Homebuyer Survey

Newbie Buyers Make Smaller Down Payments

About 60 percent of first-time home buyers put down 6 percent or less on a home purchase in September. The median down payment has dropped from 6 percent to 5 percent for first-time buyers, according to the National Association of REALTORS®’ 2017 Profile of Home Buyers and Sellers.

NAR conducted a survey of non-homeowners earlier this year and found that most consumers believe you need a down payment of 10 percent or 20 percent to buy a home.

“They may not be aware that these programs are available, and they may not be taking advantage of them,” Jessica Lautz, NAR’s managing director of survey research and communications, said in the latest Down Payment Report, published by the Down Payment Resource.

Thirty-two percent of first-time buyers said they saved for more than two years to have enough to buy a home. Student loan debt was the most often cited obstacle to saving. The second most cited barrier for saving was credit card debt.

Source: “The Down Payment Report,” Down Payment Resource (November 2017)

The Big Down Payment Myth

39 percent of non-owners say they believe they need more than 20 percent for a down payment on a home purchase. Twenty-six percent believe they need to put down 15 to 20 percent, and 22 percent say they need a down payment of 10 percent to 14 percent to buy, according to the National Association of REALTORS®’ 2017 Aspiring Home Buyers Profile report.

But now for the reality: The average down payment on a purchase mortgage was just 11 percent in 2016. And that’s just the average; often times down payments are much lower. For borrowers under the age of 35, the average down payment was just under 8 percent, according to NAR’s survey.

There are many mortgage options that offer the opportunity to make low or even no down payments. For example, the Department of Veterans Affairs and the U.S. Department of Agriculture offer no-money down loans to those who are eligible. In 2016, 16 percent of buyers under the age of 35 put no money down on their home purchase.

Further, the largest share of loans for buyers under age 35 last year were for people putting down less than 5 percent on a home purchase (or about $3,500). The 3 percent down payment programs backed by Fannie Mae and Freddie Mac, and the 3.5 percent FHA mortgage that primarily targets first-time buyers, are both helpful programs to consider. These loan programs don’t require unblemished credit either. Please contact us for more details (no obligation).

Source: “Attention First-Time Buyers: Here’s the Key Stuff You Don’t Know About Mortgages,” realtor.com® (Feb. 9, 2017)

First-Time Home Buyers Aren’t Backing Down!

Higher mortgage rates and home prices aren’t deterring first-time buyers yet. Those new to the home-purchase game comprised 32 percent of the market in November, up from a 30 percent share a year ago, according to the National Association of REALTORS®’ latest housing report.

Overall, this has been a good year for this segment of the population. NAR’s 2016 Profile of Home Buyers and Sellers, released in November, showed that the annual share of first-time buyers was 35 percent in 2016, which is the highest since 2013 (38 percent).

“There are fewer available homes during the winter months but also fewer buyers,” suggests NAR President William E. Brown. “With mortgage rates and prices expected to increase as the year goes on, the first few months of 2017 could be an opportune time close on a home.” 
So we suggest let us start your home search now, plus the loan options ASAP!

Source: National Association of REALTORS®

Down Payment Gift? Better Watch Out!

Many first-time home buyers receive down payment assistance from a family member or close friend, but they may not realize there are specific guidelines they must follow when they take money from others for a home purchase.

Buyers will need a gift letter from the person or persons who gave them the money. The person who gifted your buyer the money will need to state on paper that he or she does not plan on asking for the money back in return and that it is, indeed, a gift.

“The gift letter is very serious,” says Casey Fleming, mortgage adviser and author of “The Loan Guide: How to Get the Best Possible Mortgage.” “While it is doubtful that a lender would ever audit a file after the fact to see if the recipient is paying the donor back, if the transaction goes bad, you might very well find yourself with a subpoena in your hand.” Remember, you cannot lie on a mortgage application. It’s a felony.

Source: “Getting a Down Payment as a Gift? Avoid the Mistakes That Could Mess You Up,” realtor.com® (Nov. 28, 2016)

Builders Hampered by Soaring Regulatory Costs

The average cost to comply with regulations for new-home construction has climbed nearly 30 percent in just five years, according to the National Association of Home Builders. These costs include everything from new construction codes and storm-water discharge permits to local impact fees. The jump in regulatory costs has grown at about the same rate as the average price for a new home.

“It really makes it hard to satisfy the lower end of the market, which is a lot of first-time buyers,” Paul Emrath, the NAHB’s vice president for survey and housing policy research, told The Wall Street Journal.

Also, local infrastructure impact fees have risen by 45 percent, on average, since 2005 in 37 major home-building markets nationwide, according to a separate study by Zelman & Associates, a housing research firm.

Source: “Home Builders Say They Are Squeezed by Rising Compliance Costs,” The Wall Street Journal (May 7, 2016)

Starter Homes May Be Coming Back, After All!

Good news for first-time buyers: more starter homes are on the way. A recent analysis by BUILDER online shows the number of homebuilders offering entry-level housing rose 25 percent last year.

Since the recession, the number of new entry-level homes plummeted. BUILDER online even declared the starter home “nearly extinct” last year. However, BUILDER’s analysis of the 2016 Builder 100/Next Builder list points out an increasing number of builders are devoting at least 50 percent of their business to building entry-level homes.

Still, “the re-entry of the entry-level buyer has begun, but this group’s next moves will be gradual,” says Metrostudy’s Brad Hunter about young buyers’ emergence into the housing market. “Income challenges remain, and there are still relatively few new house developments who target this group.”

Source: “Builder 100: Entry Level Makes a Comeback,” BUILDER (April 27, 2016)

How Will Higher Interest Rates Affect Housing?

Time is ticking: The Federal Open Market Committee is less than a week away from what most analysts predict will be a vote to raise the federal funds rate for the first time since June 2006. A federal funds rate increase would then prompt interest rates to move higher.

Just how big of an impact could it have to potential home shoppers’ wallets? Forbes.com cites an example of a 30-year fixed-rate mortgage with a 10 percent down payment on a $350,000 home at 4 percent will cost home purchasers about $1,503.86 per month plus taxes, home owner’s insurance and Private Mortgage Insurance. That same 30-year fixed-rate mortgage with a 4.5 percent interest rate will cost a home buyer $1,596.06 per month – an extra $92.20 per month or $33,191.54 over the 30-year life of a mortgage. If rates rise to 5 percent the costs will jump to an extra $184.40 per month and $66,383 over the 30 year life of the loan.

A new First American Financial report showed that interest rates would need to reach 5.1 percent before significantly influencing the volume of residential transactions.

Source: “What Will the Looming Fed Rate Hike Do to Housing?” HousingWire (Dec. 9, 2015) and “How Much House Will a Rate Hike Cost You?” Forbes (Nov. 8, 2015)