12/10/2019
The Down Payment Hurdle: May be Easier to Overcome
Than You Think
The California housing market continues to be invigorated by low mortgage rates, which has led to a year- over-year increase in home sales for the second month in a row. At just over 400,000 sales in the month of September, the 5.8 percent year-over-year increase is the highest growth rate seen since March 2017. Lower interest rates caused the monthly payment on the median-priced home to drop 7.4 percent from last September, continuing the declining trend that started in March 2019. The dip in mortgage payment, which enables home buyers to save hundreds of dollars, is an important variable that could help sustain the sales momentum through the remaining part of 2019.
But housing affordability is not just about mortgage payments. Down payments also play a huge role in holding buyers back from buying sooner. According to the California Association of REALTORS® 2019 Consumer Survey, over a quarter of buyers say they would have purchased sooner, but they needed to save for their down payment first. And this is felt to an even higher degree by younger generations, with two out of every three millennials reporting the need to save for a down payment. With the median price remaining near the record high, and a typical buyer still putting 20 percent down, the median down payment for a single-family home in California in September was $121,136- a number nearly $20,000 higher than the median household income reported by California buyers and nearly $25,000 higher than the median income of younger buyers, resulting in millennials saving for a median of four years with 24 percent saving for eight years or more.
That said, a whopping 2/3 of potential buyers say they would start looking for a house now if they knew they could qualify for a mortgage with a much lower down payment. Eighty-one percent do not know how much they would qualify for a home loan and only 21 percent are aware of first-time buyer programs in their area. This little bit of knowledge could be the push they need as two in five potential buyers have already started to save for a down payment, and yet 61 percent of them think they will need to put down 20 percent or more, with 17 percent of that group think 50 percent or more is needed.
There are a number of low down payment alternatives available to help buyers get into a home sooner. Down payment assistance programs offer loans, typically with a low interest rate. Some of them aimed specifically at helping both first-time buyers and low- to moderate-income buyers get into a home. Mortgage credit certificates allow an increase in income by obtaining a tax credit for a specified percentage of mortgage interest. Grants and gifts may be offered by state and federal governments, non-profit organizations, or the local community. For more information, visit downpayment.car.org.
