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The 20 percent downpayment myth

Oct 3
7:29
AM
Category | General

793815 - two-story house with five dollar bills backgroundThink that you need a 20 percent downpayment to purchase a home? Many prospective home buyers buy into this myth, studies show. Yet research shows that among those who take out a mortgage to purchase a home, the median downpayment is about 10 percent.

For first-time home buyers (comprising more than one third of all home buyers), the downpayment is typically lower, in the 5 percent range, while repeat buyers typically make a downpayment of around 14 percent, according to National Association of Realtors’ data.

In all, 88 percent of home buyers finance their home purchases. Some other home financing facts:

  • For 59 percent of home buyers, the source of their downpayment is wholly or partially their personal savings. Thirty-eight percent of home buyers use all or part of the proceeds from the sale of a primary residence, contributing to the larger downpayment for repeat buyers.
  • For 13 percent of buyers, the most difficult step in the home buying process is saving for a downpayment. Of those buyers, nearly half say that student loans made saving for a downpayment more challenging. Forty-two percent cite credit card debt as being their primary challenge; 37 percent cite car loans.
  • Of all home buyers surveyed, 65 percent are married couples, 18 percent are single females, 7 percent are single males, and 8 percent are unmarried couples.

Are you ready to purchase a home? We’re here to help you get started!


38391470 - female realtor giving young couple key from real estateYou found a home your family loves. But you’re not the only one who wants it. What’s the best way to make an offer on a home that other buyers are vying for as well? Here are some ways to put your best foot forward:

Start off with your best offer. This isn’t the time to start with a lowball offer and wait for the seller to make a counteroffer before you offer more. If you have competition, you’ll want to consider making your best offer right off the bat. That said, don’t let a multiple offer situation push you into offering more than you’re comfortable paying.

Make sure you’re pre-approved. Make sure you’re pre-approved for a home loan before you start your home search, not just prequalified. Attach your pre-approval letter to your offer.

Don’t skimp on earnest money. An adequate earnest money deposit is a sign that you’re serious about buying the home.

Don’t waive the home inspection. In multiple offer situations, it’s easy to get caught up in the competition and do whatever it takes to win. To stand out, some buyers will even elect to not make a professional home inspection a contingency of their offer. Home inspections are an important part of the home buying process and can help you spot costly problems.

Relax. There are so many parts of a multiple offer situation you have no control over, so try not to let the stress get to you.


3486735 - family moving into new home smilingHomeowner and renter insurance plans are designed to protect you in the event of a disaster such as a fire. But with all the items in an average household, it’s imperative that you document your belongings so that you can file an accurate and timely claim should you need to. When moving, many families buy new appliances or furniture and in some cases get rid of other items. That’s why once you’re settled into your new home, it’s an ideal time to create or update your home inventory. Here are the three components of an effective home inventory:

Photos or video. You can take photos or video, but you’ll want shots of entire rooms and close-ups of items such as electronics, jewelry, collectibles, guns and any individual items of significant value. It’s a good idea if you’re using video to provide a narration as you walk through each room, explaining what you are recording.

A written inventory. You’ll also want to prepare a written inventory of your belongings. You can create a Word document on your computer or use a blank sheet of paper or a worksheet like this one from the National Association of Realtors. Keep your written inventory with receipts for items you’ve purchased.

Safe storage. If you have a fireproof safe, keep both your visual and written inventories there or in another safe place. You also may want to keep a copy off-site as well, in a safe-deposit box or with a trusted friend or family member. If your written and visual inventory is saved electronically, make sure it’s backed up.

Having a home inventory makes surviving and dealing with a home disaster a lot less stressful. Could you imagine trying to recount every single item in your home that was damaged, destroyed or stolen? With a home inventory, you’re more ready for the unexpected.


47966326 - credit score report with pen, glasses, and organizer bookYour credit score has more of an impact on your monthly mortgage payment than you might think. Generally, the higher your score, the lower the mortgage you may be able to qualify for. And the lower your credit score, the higher your mortgage rate.

Credit-scoring company Fair Isaac Corp. has an example: A home buyer with a credit score between 760 and 850 who qualifies for an annual percentage rate (APR) of 4.258 percent would pay $1,477 per month in principal and interest on a 30-year fixed-rate home loan of $300,000. The same borrower, but with a credit score of 700 to 759, would qualify for a higher APR of 4.48 percent and have a higher monthly payment of $1,516, while a borrower with a credit score of under 640 could have an APR as high as 5.847 percent, or a monthly payment of nearly $1,769 per month.

Your mortgage rate depends on a number of factors beyond your credit score, of course. Your monthly payment can vary depending on how much of a down payment you can make, whether you’re purchasing a primary residence or second home, and the type and term of your mortgage.

But credit scores undoubtedly are a big factor and improving your score can save you thousands, even tens of thousands of dollars over the life of your loan. What is the best way to improve your credit score? Here are some tips from Fair Isaac Corp.:

Check your credit report. Your credit score is based on information contained in your credit report. Many reports contain errors. You can order a free copy of your credit report by going to this link. Request that any inaccuracies be corrected.

Make payments on time. Whether it’s your rent payment, your student loan payment, your credit card payment or any other monthly obligation you have, making payments on time is one of the most important things you can do to raise your credit score over time.

Pay down your debts. Using only a portion of the credit that is available to you can help raise your credit score. Likewise, using all or most of your available credit can lower your score.


21234963 - portrait of male plumber fixing a sink in bathroomWhen it comes time to sell your home, you’ll need to decide which types of repairs and improvements you’ll want to make before it’s listed for sale. Should you update your kitchen? Apply fresh paint to the living room? Plant flowers? Clean or replace your worn carpet? Your real estate agent can help you determine which repairs may be the most important in appealing to the most prospective home buyers.

In general, many buyers don’t like buying a home that has a number of small maintenance problems, such as leaky faucets or a hole in a wall that needs to be patched with drywall. A number of repair issues may make prospective buyers wonder what else is wrong with your home. That’s why in many cases, you may want to consider addressing these types of issues when you’re getting your property ready to sell. Many buyers make offers contingent upon an inspection, so you may be asked to fix some maintenance issues anyway.

Larger issues, such as a furnace or roof that needs replacement, can make for a tougher decision. You may get only a portion of the investment in a large repair or renovation back when you actually sell your property. For information on the typical return on investment for renovation projects, check out Remodeling Magazine’s Cost vs. Value report.

And don’t forget: If you’re thinking of work that involves flooring or paint, don’t pick the colors and materials that you like; you’re moving! Make sure your upgrades are neutral and appealing to the greatest number of buyers. Your agent can give you a good idea of what type of flooring, cabinetry, paint and other upgrades are the most popular with home buyers right now.


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