There is a lot of conflicting information about how big a down payment needs to be—to purchase a home. Old standards, beliefs, expectations, and traditions die hard.
Down Payment Reality
While the benchmark of mortgage down payments is a twenty-percent down payment, statistics from the National Association of Realtors (NAR) show that nationwide the average purchase down payment in 2016 was just 11 percent. In California, and other states where home prices are higher, that average down payment is slightly higher, but still less than 20%. As might be expected, the average down payment for young first-time home buyers tends to be less than the average down payment for older move-up buyers.
Down Payment Beliefs
Interestingly, surveys by the National Association of Realtors (NAR) and Zelman & Associates show that 39 percent of “non-owners” (renters and those living with parents, etcetera) believe they need a down payment of more than 20%. Twenty-six percent of those surveyed non-owners believe they need a down payment of 15 to 20%. And 22 percent of the non-owners believe they need a down payment of 10 to 14%. That adds up to huge majority of potential buyers who believe they need a down payment that exceeds that real nationwide average down payment.
Below are some of the loan options available, that can make the purchase of a home possible with less than a 20% down payment.
No Down Payment Loans
• VA (Veteran) guaranteed loans with no down payment up to $625,500 in Santa Barbara County. Even larger Jumbo VA loans are available with a down payment. You may know more veterans than you realize; more than 13% of male Americans and more than 1% of female Americans have served in the armed forces.
• USDA guaranteed loans with no down payment, subject to geographic, income, and loan size restrictions.
3% Down Payment Loans
• Conventional Conforming loans to $424,100, with private mortgage insurance.
3½% Down Payment Loans
• FHA government-insured loans up to $636,150 (in Santa Barbara County).
5% Down Payment Loans
• Conventional Conforming loans to $625,500 (in Santa Barbara County), with private mortgage insurance.
10 to 19% Down Payment Loans
• Conventional Conforming loans to $625,500 (in Santa Barbara County), with private mortgage insurance, and Jumbo loans to $1.50 million without mortgage insurance.
If you know someone who might be in the market to buy a home now or in the future, a low down payment loan can be an option. It is a great way to get into a home and start building equity. There are some other very common ways that home buyers can get an assist towards buying a home. The biggest and most common assist comes in the form of GIFTS of cash from family members. The second most common assist involves someone acting as a co-signer on the mortgage loan with the home buyer. To a lesser dollar extent, home sellers can also provide an assist, by providing a credit to buyers, that can be used to offset some of the buyer’s purchase transaction costs. Not everyone is a good candidate for these programs, but I’m happy to work with anyone interested in exploring these financing options.
As always, thanks for your interest,
Dan Marchiando, your California Mortgage Broker and Loan Officer