Down Payment Misconceptions
According to Freddie Mac, many Americans, including those near the average age of a first-time home buyer, have an inflated idea of down payment requirements. This discovery could offer insight into why many Millennials are pushing off purchasing homes.
Research firm Zelman and Associates found that 39 percent of survey respondents estimated the minimum down payment requirement is at least 15 percent of the purchase price. Most of these individuals holding an inflated idea of down payments are in their prime homebuying years. The survey found that 38 percent of 25-29 year olds and 42 percent of 30-34 year olds believed lenders demand minimum down payments of 15 percent.
Today, with down payments falling as low as 5 percent, these misinformed opinions regarding down payment amounts represent a failure of the real estate industry to reach potential home buyers. Because of these ideas, more young professionals consider home ownership an impossibility, when it may be within their reach.
The survey also uncovered that “only 28 percent (of all respondents) were optimistic that they could qualify for a mortgage. This includes 30 percent of 25-29 year olds and 40 percent of 30-34 year olds.” As a result, nearly 70 percent of the target home-buying population are dismissing the idea of home ownership before even researching their options.
According to Freddie Mac, mortgages with down payments under 10 percent have more than quadrupled since 2009. Most states even offer down payment assistance programs for qualified borrowers. Promotion of these programs could provide significant impetus to the housing recovery.
As this story reaches headlines and more potential homebuyers become knowledgeable of actual down payment requirements, lenders could experience a rise in applications. With strong credit application software, organizations can make the right choice every time.