Confusion over down payment requirements is hindering some consumers’ confidence about buying a home.
For the past three years, the median down payment for first-time buyers has been 6 percent and 14 percent for repeat buyers, according to the National Association of REALTORS®’ Profile of Home Buyers and Sellers. Yet, when consumers are asked about the down payment amount they need to buy, 87 percent of non-owners say that a down payment of 10 percent or more is necessary.
“Current non-owners’ ultimate goal of owning a home may not be as far-fetched as they believe,” says NAR President William E. Brown. “There are mortgage options available for creditworthy borrowers with manageable levels of debt and smaller down payments. Those interested in buying their first home in 2017 should review their finances, sit down with a lender to see if they qualify for a mortgage, and find a REALTOR® to help them get started on their home search.” (Read: Smaller Down Payments Lure More Buyers and 3% Down Payments May Be Game Changer)
Consumers in general have a favorable view over homeownership: 90 percent of home owners and about eight in 10 non-homeowners indicate that owning a home is part of their American Dream, according to NAR’s Aspiring Home Buyer Profile, which included 2016 survey data from its Housing Opportunities and Market Experience (HOME) survey. That said, optimism about now being a good time to buy is starting to diminish among non-homeowners.
In the first quarter of 2016, 63 percent of consumers said now is a good time to buy. By the fourth quarter of last year, that percentage had dipped to 55 percent.
“Nearly all non-homeowners said they want to own a home in the future (87 percent), but it’s evident that higher rents and home prices – up 41 percent in the past five years – along with limited entry-level supply and repaying student debt have combined to make buying a challenging goal,” says Lawrence Yun, NAR’s chief economist. “It’s also a little surprise that non-owners in the West – where price appreciation has been the strongest – were the least optimistic about buying.”
Not surprisingly, however, the number one reason non-owners cites as not wanting to own: The inability to afford homeownership. More than half of non-owners in 2016 said they could not afford to buy a home; about one-fifth of respondents said they needed the flexibility of renting.
Student debt is increasingly sidelining many would-be buyers too. Of the 39 percent of non-homeowners who said they had student debt in the second quarter, a majority indicated they were not very or not at all comfortable taking on a mortgage (59 percent). A separate study last year conducted by NAR similarly found that nearly three-quarters of non-homeowners who are employed and repaying their student loans on time believe their debt is preventing them from purchasing a home; slightly more than half of borrowers expected that delay to be five years or more.
“In addition to having to postpone important milestones such as getting married and starting a family, many young adults are financially falling behind previous generations in part because of having to prioritize repaying their sizeable student loans over buying a home and saving for retirement,” says Yun.
Source: “Aspiring Home Buyers Profile,” National Association of REALTORS® (February 2017)