Freddie Mac’s Christina Boyle believes that consumers persistently overestimate the size of a down payment needed to finance a home, and this lack of education is harming the housing market.
According to a study by Zelman & Associates, respondents, on average, believe lenders require a down payment of at least 11 to 15 percent. Boyle believes the survey is “a wakeup call to the housing industry that we have more to do to let the next generation know they can get a conforming, conventional or FHA mortgage with a down payment of as little as 5 percent (sometimes with as little as 3 percent coming out of their own pockets).”
Based upon the responses, roughly 60% - 72% of first-time home buyers don’t believe they can get a mortgage and are underestimating their potential for qualifying for a conforming, conventional mortgage with a low down payment. Boyle’s biggest concern is that this percentage includes a large population of people who are in their “prime home buying years.”
With mortgage rates still near historic lows, new home ownership opportunities are poised to grow. The challenge is finding those who don’t realize they can afford to finance a home and showing them how they can,” she concluded. The latest statistics for 2014 show more than one in five borrowers who took out confirming, conventional mortgages this year put down 10% or less.
NEI Strategy for Relocation Programs
Knowing that many young buyers overestimate the size of the down payment, offering to pay buyer's closing costs can be a great incentive when marketing properties within a first-time buyer price range.
To create a sense of urgency, it is best to include an expiration date of 30-45 days on the incentive.