Numbers Count: Options for down payment help
Numbers count. They matter to bankers and to prospective homebuyers, sellers, and real estate professionals. Here’s my take on the key numbers on the housing market this week.The numbers: Concerns over affording a down payment
Research from the Federal Reserve found that 81% of renters say they would prefer to own their home if they could afford to do so. Asked why they do not own their home, 50% of renters answered that they cannot afford a down payment — this was the leading response, according to the Fed’s Report on the Economic Well-Being of U.S. Households in 2014 released May 25.What counts: With 50% of renters who would like to buy saying they can’t afford a down payment, this is a good opportunity to remind potential buyers that when thinking about a down payment, the magic number may be 3%. That is because, this year, there are new loan programs to help first-time buyers and others who may have limited funds for a down payment.
Many banks are now offering 3% down mortgages through programs launched this year by Fannie Mae and Freddie Mac. Though they do not provide mortgages, Fannie Mae and Freddie Mac have a big influence on mortgage lending. They acquire loans from banks, including Bank of the West, so their willingness to acquire 97% loan-to-value (LTV) mortgages helps encourage banks to issue these mortgages.
Freddie Mac’s program Home Possible Advantage is a conforming, conventional mortgage with a 3% down payment requirement designed to help first-time buyers and other qualified borrowers with limited down-payment savings. Fannie Mae has a similar 3% down payment program.
For qualified borrowers, there may be other options to buy a home without coming up with a 20% cash down payment. Of course, putting cash down of 20% offers potential advantages, such as removing the added cost of mortgage insurance and lowering a buyer’s monthly mortgage payment.
The important point is there are options for those who think they are ready to buy a home. I’ll close with an encouraging data point from the Fed report for renters who want to own: One- third of the renters surveyed by the Fed in 2013 who were looking to buy a home actually bought a home within the following year.