(BPT) - Confused about how much you need for a down payment on a house? You’re not alone.
Whether it’s your first time buying a home or you've been around the block, calculating the right amount for a down payment can be a challenge. Many admit that accumulating down payment funds is one of the more daunting parts of the homebuying process. However, the down payment hurdle is not always based on financial reality, but rather on a longstanding myth — that 20 percent of a home's purchase price is required. In fact, almost half (45 percent) of first-time buyers thought they needed 20 percent or more for a down payment, according to Bank of America's 2017 Homebuyer Insights Report.
While putting 20 percent down was an established rule of thumb for previous generations, people are rethinking the former one-size-fits-all approach to homeownership.
So, what’s the magic number?
Is it 3 percent? 5 percent? 10 percent? 30 percent? With so much uncertainty about down payment requirements, it’s no wonder people have trouble determining when and if they can buy a home. The truth is, however, that the magic number varies from one homebuyer to the next. According to the National Association of REALTORS, buyers put an average of just 6 percent down when buying a home, far below common perceptions. With this truth in mind, prospective buyers can access tips and tools that will help them create a plan that's customizable to their financial situation, helping them feel confident in their decision to buy.
Whether you’re financially stable or could use a little assistance, don't feel trapped by the 20 percent down payment — it's a myth after all.
Knowledge is (buying) power
With U.S. homeownership near a 50-year record low, according to Rosen Consulting Group, it's important that potential buyers understand the affordable housing options available to them so they have the opportunity to pursue their dreams of homeownership.
Down payments don't need to be intimidating. There are affordable entry points to homeownership for creditworthy buyers, many of which require down payments as low as 3 percent. Prospective homeowners can explore ways to lower upfront figures by searching for down payment and cost-saving programs, using tools like Bank of America’s Down Payment Resource Center. This database has more than 1,000 local and national assistance programs and is a way to navigate and research many of the existing options in the buying space.
Purchasing power correlates with responsibility and accountability. With that said, if buyers put in the time to research and educate themselves on affordable-housing solutions, they will discover that homeownership may be closer in reach than they thought.
Be realistic, not idealistic, about buying a home
While you want to confirm that you are in a financial position to comfortably make monthly mortgage payments and properly maintain a home, you don’t have to have a perfect financial situation. Before you begin house hunting, there are things you can look into to get prepared. Checking your credit score will give you a better understanding of how you’ll be viewed as a potential borrower. While having a healthy credit score is ideal, there are options for applicants with limited or nontraditional credit histories. For instance, Bank of America’s Affordable Loan Solution mortgage accepts nontraditional forms of credit history, meaning buyers can show financial accountability in the form of monthly rent payments and utility bills. This low down payment program allows buyers to put down as little as 3 percent, and there is no mortgage insurance requirement.
Beyond formalized down payment assistance programs, many first-time buyers today get help from family in the form of gifts or assistance from employers. It’s also common to ask the seller of a home to contribute toward closing costs, which can help reduce out-of-pocket costs to close a loan.
Educational resources that support and inform the modern homebuying process allow buyers to feel confident in choosing an affordable solution that makes buying more accessible. Homeownership remains the best way for families to build wealth and stability over the long term, and busting common down payment myths helps people overcome the obstacles that stand between them and their dream of homeownership.