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Why the 20% Down Payment Might Soon be Gone

 

When it comes to buying a home, one thing that stops many people is coming up with a 20% down payment. While at one time putting 20% down was standard practice, there has been a shift away from doing so in recent years. A traditional down payment of 20% is no longer the norm, and could soon be a thing of the past. What is driving this trend, and is it a good thing or a bad thing? Let’s take a look at what is happening in the mortgage industry.

Trend Toward Less Money Down

Lenders often quote a 20% down payment as the “gold standard” among home buyers. Even so, the majority of people have a down payment that is far less than that amount. According to the National Association of Realtors (NAR), 70% of first-time home buyers and 54% of all other purchasers put down less than 20% during the past five years. In addition, 60% of first-time home buyers had a down payment that was only 6% or lower.

In Place Since the 1980s

In recent years, there has been a surge in the number of people putting less than 20% down. Even so, the concept actually dates back to the 1980s, which is when the Federal Housing Authority (FHA) first began backing loans with only 5% down. Conventional lenders began following suit during the 1990s, although the fact that they were doing so was not well publicized.

Many People Do not Realize

Data shows that more people than ever are putting less than 20% down. However, that number could be even higher if more individuals were aware that there were other options available. One real estate agent claimed that about half of her clients were unaware that they could buy a home with less than 20% down. A recent survey from the National Association of Realtors (NAR) also revealed that only 13% of adults ages 34 and younger were aware that they could purchase a home with a down payment of only 5%.

Why Don’t People Know?

Why people are unaware of low down payment loans is something of a mystery. It could be because traditional 30-year fixed rate mortgages that require a 20% down payment are most often quoted among lenders and real estate agents. Another could be that a number of financial institutions do not offer these loans or highly discourage people from pursuing them if they do.

Regardless of why people don’t know, the truth is that more people are now learning of low down payment loans than ever before. As a result, many who were waiting until they had saved a significant sum of money might decide to go ahead and pursue their dream of home ownership.

There are some definite advantages to putting 20% down, namely that doing so can help you avoid Private Mortgage Insurance (PMI). But in cases where coming up with a large down payment is not possible, it’s great to know that there are plenty of other options available.

 

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