If you’re hoping to purchase a home, but struggling to save for a down payment, you’re not alone. Access to a down payment still remains the number one obstacle for homebuyers, but we have some good news for you…

Down payment help is available. 

Down payment assistance can make a significant impact to your home buying bottom line, and it’s never been truer than in today’s market. According to our latest Homeownership Program Index, there are over 2,000 homebuyer assistance programs available across the country. Yet, many homebuyers don’t know if they’re eligible for assistance or if programs are available in their area.

In fact, a survey by NeighborWorks America found that “less than half of non-homeowners are aware of any home buying education or down payment assistance programs in the communities”.

So, how do these programs help you? Let’s review the top five ways you can benefit:

1. Helps you purchase a home sooner.

Many buyers remain on the sidelines, saving money and watching interest rates. Down payment programs provide grants (gifts) or forgivable loans that help with your down payment and closing costs. These resources can immediately build your home buying power and help you take action sooner than you thought possible.

2. Helps offset FHA premiums and mortgage insurance.

Over the years, FHA has been the primary place for many first-time homebuyers to get a low-cost, low down payment loan. However, these affordable loans also include premiums (loan fees) and mortgage insurance to manage the risk on the loan. You may not know that your FHA loans can be combined with a down payment assistance program, helping offset the costs of premiums and mortgage insurance.

3. Helps community service employees live close to their job.

Many community service employees, such as police officers, firefighters and educators can’t afford to purchase a home in the community where they work, especially in high-cost areas. There are several targeted down payment programs that help keep valuable employees in the community, as well as reduce commuter costs.

4. Gives you an important cash cushion.

In the National Association of REALTORS® 2021 Profile of Home Buyers and Sellers, 61 percent of first-time homebuyers used savings to fund their down payment. Using a down payment program can help with the upfront cash for the down payment and closing costs, which leaves your savings for things like home maintenance and other homeownership expenses.

5. Provides valuable homeownership education. 

In order to qualify for a homebuyer assistance program, you will most likely be required to complete a homeownership education course. This course typically covers the logistics and steps of buying a home, as well as financing basics, homeownership responsibilities and contract obligations. This valuable, upfront education helps you prepare for the home buying process and sets you up for long-term homeownership success. Plus, many programs accept online homeownership education, making it easy for you to complete the course on your own time.

Ready to find out what programs may be a fit for you? Check out our program search to get started.

A down payment is simply the amount of cash you are putting towards the purchase of your home. For a $200,000 home, 20 percent down would be $40,000. No small amount.

Despite what you may have heard, a 20 percent down payment on a home is not necessary. Here’s why.

The 20 Percent Down Myth: Then and Now

The myth of the 20 percent down requirement has been circulating since the housing crisis over 10 years ago. Access to credit tightened, especially for median-income homebuyers. Even responsible buyers who had the income to buy, but lacked a large down payment, faced the same challenges. Thankfully, the landscape has improved.

Low down payment options have been around for a long time. In fact, data shows that low down payment loans with sound underwriting are just as successful as loans with large down payments.

However, putting down 20 percent isn’t necessarily a bad thing. It may be the right choice for you if you have the savings as well as investments in other assets. It gives you 20 percent equity in your home and helps you avoid paying a monthly fee for private mortgage insurance.

Sidelined Buyers Watch Housing Costs Rise

At the same time, saving for 20 percent is keeping many buyers on the sidelines. Plus, high demand is rapidly increasing home prices, making it harder and harder to save for that down payment. The goal posts keep moving while you’re trying to do all the right things.

There are plenty of ways for buyers to make themselves more competitive in a tight market. One is using a low down payment loan, along with down payment assistance. This way, you can leverage and diversify your other investments so all your money isn’t in one asset—your home.

What Are Your Options?

Wait and save. Just keep in mind that it’s estimated to take 14 years or more for a homebuyer to save for a 20 percent down payment. That’s more than 14 years for your rent, home prices, and interest rates to rise, too. And 14 years later, you’ll have zero equity in a home, wiping out yours and your next generation’s wealth-building potential.

Find a homeownership program. The majority of homeownership programs provide down payment and closing cost assistance, helping finance some or all of your costs. There are nearly 2,300 homeownership programs available across the country, including grants, forgivable loans, below-market first mortgages, tax credits and more.

The average down payment program benefit across all programs is more than $7,500. Both the home and the homebuyer must qualify for the program so do your research early.

Use a low down payment mortgage. There are several options for buyers today. Keep in mind that you can layer down payment programs with these loans.

• FHA loan: Popular with first-time homebuyers, it allows a 3.5% down payment minimum.
• VA loan: If you are a veteran or member of the U.S. military, look into a VA loan which offers 0% down.
• USDA loan: Eligible in rural and suburban areas, it offers 0% down.
• Home Possible mortgage: Freddie Mac’s low down payment loan allows down payments of 3 to 5% and flexible sources of funds for down payments.
• HomeReady mortgage: Fannie Mae’s new loan program that allows a 3% minimum down payment. It’s great for multigenerational households because it allows the income of everyone in the home to be used to qualify for the home loan.
• Conventional loan with private mortgage insurance: Allows 3% down payment minimum. PMI will be required if you put down less than 20%. However, both upfront and ongoing PMI costs are lower with conventional financing than other options, and you can get rid of PMI once you’ve accrued over 20% equity in your home down the road.

There Is No “One Size Fits All”

For home loans, there’s not a “one size fits all” or right choice for everyone. Like you, your finances and home buying goals are unique. That’s why it’s important to lock up your home financing before you tour that dream home.

Begin by investigating your options early: talk to multiple lenders, search for homeownership programs, and talk to your real estate agent.

Do you have a low down payment story to share? We’d love to hear about your experience.

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Are you an industry professional? Download our latest Down Payment Report for the data and news on first-time homebuyers and residential down payments.

If you’re the newbie buyer on the block right now, it’s tough out there. How can you be more competitive when you’re up against tight inventory and higher prices? Plus, if you’re currently renting, you don’t have equity from a home sale to help fund your down payment.

These six ideas can help you (finally!) score a home of your own.

1. Get your down payment in order.

Saving is always good, but you don’t need to wait to save for 20 percent down. The good news is there are many low down payment loans and down payment assistance programs available to help you get in a home sooner.

You just need to get your home financing plan together so you can act quickly when the right home becomes available. Start by first seeing if you may qualify for one of the more than 2,300 homeownership programs available across the country. You can also ask your agent and lender about options in your community. And, don’t forget to check with your employer – some offer Employer Assisted Housing programs as an employee benefit.

2. Get your homebuyer education.

Time to go back to school. Don’t worry, there won’t be a test and you can often do homebuyer education online on your own time or in a few blocks of time over a weekend. Online counseling options, such as eHomeAmerica, cost approximately $75-$100. With that fee, you also get access to planning documents, videos and other resources after the course is completed.

It might feel like you need to get out in the market immediately, but data shows that homebuyer education and counseling builds successful long term homeowners. Plus, most down payment programs require the recipient participate in homebuyer education so you’ll be a step ahead.

3. Get pre-approved – and shop your loan.

Ironically, we shop around for everything from appliances to mascara, but we don’t shop our home loan — one of the largest financial decisions we’ll make.

Interview at least three lenders – start with our 5 essential questions for your lender if you need help. Get pre-approved by your lender of choice — in a fast market, you need more than just pre-qualification. You need to show that you are actually approved for a home loan.

4. Contact a real estate agent.

Buying a home is one of the biggest financial decisions you’ll ever make. You need to be sure you have a good team on your side. Finding a real estate agent may feel overwhelming, but there are ways to narrow your search.

Ask your loan officer for a referral. Tap into your own network of friends and family who may have recently purchased a home. Or you can always search online for real estate agents in your area. Just make sure to do your research and interview a few candidates. It’s important that your agent has experience with your specific needs, especially if you’re using a down payment program.

5. Use technology to keep up with inventory.

Technology is your friend — automate that home search. Talk to your agent about setting up alerts so you know as soon as a listing is online. You can also sign up for accounts at the major listing portals like Zillow, Trulia and Realtor.com and register for alerts when new homes come on the market in your area. In a tight market, you want to be the first to know.

6. Pack some flexibility.

What if your offer doesn’t get accepted? If you’re a first-time homebuyer, it may be harder to compete against multiple offers in a fast moving market. Consider looking at “stale listings” — these are listings that may not have sold in the first few days, weeks or months on the market.

With everyone rushing to listings when they first hit the market, it can pay off to go back and revisit homes that were overlooked. If you are open to other home styles, neighborhoods or homes that need some love, you might be more competitive on the second look.

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Are you an industry professional? Download our latest Down Payment Report for the data and news on first-time homebuyers and residential down payments.

Life is full of surprises. Don’t let the unexpected events of last year keep you from setting new year goals for 2021. 

It’s time to look forward and decide on your priorities for the coming year. If owning a home is on your list, these four simple steps can help jump start your journey to homeownership.

1. Simple budget review

How much are you currently spending each month on rent and other housing related expenses, like utilities? What is that amount annually? Do you anticipate any rent increases?

Take a look at your other expenses too. You want to have a solid understanding of your monthly income and expenses. This exercise will keep you from jumping into a mortgage payment that stretches you and your family too far.

And, with homeownership comes home maintenance so it’s important to have a cushion for those necessary (and sometimes fun!) projects.

2. Check in on your credit

If you’re not familiar with your credit history, or need a refresher, you can request a free copy of your credit report every twelve months from each of the three reporting agencies. 

After reviewing your credit, you may find you have some work to do. Don’t worry. Financial literacy and education is important for all homebuyers. A mortgage lender or housing counselor can also work with you to help repair your credit and prepare you for homeownership.

3. Interview lenders

Mortgages are never one size fits all. You want to work with a lender who can listen to your goals and budget to find the best fit for you. Make a plan to talk to at least three lenders before you make a commitment. Learn about their low down payment options, fees and the monthly and lifetime cost of your mortgage.

Check out our five essential lender interview questions for a guide on what to ask prospective mortgage lenders.

4. Search for down payment programs

Do you know about homebuyer programs that can help you save on your down payment and closing costs? Down payment programs can give you a major homeownership boost in the form of grants, forgivable loans and tax credits. But, they also require approvals and paperwork so you want to get your options on the table soon.

Investigate what’s available in the area you plan to buy. Use our program finder to answer a few questions about your household to narrow down your options. Review your results with your agent and lender.

Good luck and happy homebuying in 2021!

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Never want to miss a post? For more useful down payment and home buying information, subscribe to our mailing list.

Are you an industry professional? Download our latest Down Payment Report for the data and news on first-time homebuyers and residential down payments.

We know, saving for a down payment can be the most difficult part of home buying, especially for first-timers who don’t have the proceeds from a previous home sale to help with their down payment.

You may already be saving for retirement through your 401K or IRA. If it’s your biggest source of savings, you may be tempted to borrow from yourself to get that down payment now. But, should you?

According to Bank of the West’s annual Millennial Study, one in three Millennials dipped into retirement accounts to fund their purchase.

And, the National Association of REALTORS® Profile of Homebuyers and Sellers found that 19 percent of first-time buyers liquidated part of their 401K, stocks and bonds, or IRA savings to fund their down payment.

But, is liquidating your long-term savings really the best choice?

For many situations, the answer is no. Borrowing from your long-term savings negatively impacts the snowball (or compounding) effect of your 401K fund growth. The big idea being the earlier you start saving – even in small amounts — the greater your gains are each year putting you that much closer to meeting your retirement goals.

So, if you pull that cash out now, you’re back to square one with less time to build that snowball. And, none of us wants to be punching the clock post-retirement. Right?

Before you pull the trigger on using retirement savings for a down payment, do some research on the short and long term impact to your personal situation.

The most overlooked source of a down payment?

The National Association of REALTORS found that only 2 percent of first-time homebuyers used financial assistance, like a down payment program.

Yet, these programs may be your best bet. If you qualify, you keep your 401K intact and get help for your down payment and closing costs. You can also combine these programs with some of your own savings as well as low down payment first mortgages, helping you gain upfront equity and lower your monthly payment. Plus, many states also have tax credits that can help you save over the life of your loan.

Avoid home buying regrets

The Bank of the West Millennial Study also reported that 68 percent of millennial buyers said they had home buying regrets, wishing they had been more prepared, had more money down or had better inspected the home before they bought it.

What can you do to be more prepared? First, hit pause on going to Sunday open houses and get your home financing in order. It will help you avoid home buying regrets later.

Consider signing up for homeownership counseling to get the education you need, now and investigate all your down payment options first.

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Many studies about saving for a down payment automatically factor in 20 percent down as the standard. But, most first-time homebuyers don’t put down anywhere near that amount. In fact, the median down payment for buyers younger than 37 was just 7 percent, plus many loans and homebuyer programs offer much lower down payment requirements.

Recalculating the wait

It’s time to recalculate how long you actually need to save. Veritas Urbis Economics did just that. Assuming a middle-class salary and the purchase of a median priced home (that’s currently around $252,000), they found you may have the down payment in less than two years. That’s assuming you’re putting away at least 10 percent of your income.

The 20 percent down myth

It’s true that 20 percent was the recommendation for years, primarily because you can get the best rates and avoid paying private mortgage insurance. But, for first-time homebuyers who don’t have the equity in a current home to provide that large down payment sum, saving for 20 percent could keep you sidelined for years.

Down payment programs

Money Magazine points out that buyers can access one of the many down payment programs, including grants and interest-free loans, to help bridge the gap for new buyers and cover some or all of the down payment and closing costs.

With home prices on the rise in most areas, demand is rising for down payment assistance, according to Rob Chrane, CEO of Down Payment Resource.

Find out what down payment programs are in your market.

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