Most first-time homebuyers put less than 20% down
As you're aware, saving for a down payment is one of the biggest obstacles to homeownership. But according to a National Association of Realtors® survey, 74% of first-time homebuyers put less than 20% down.Footnote1 This should come as encouraging news to any client who's looking to purchase their first home.
The idea of the American dream including homeownership is so strong that lenders, government agencies and some large employers are willing to do their part — by offering down payments as low as 3% — to help make owning a home a reality.
To put this in perspective, on a median-priced home of $315,000,Footnote2 the difference between a 3% and 20% down payment is over $53,500!
Down payment assistance through the public sector
The following government agencies partner with commercial lenders to create favorable home buying terms.
- The Federal Housing Administration (FHA) collaborates with lenders to help the homebuyer get approved for a loan by guaranteeing a portion of the loan's balance.Footnote3 This includes reducing the down payment to as low as 3.5%.
- Fannie Mae and Freddie Mac — government-sponsored companies — work with private lenders to offer down payments as low as 3% and, in some cases, no down payment at all.
- The Department of Veterans Affairs offers assistance to active and retired military service members. Veterans may qualify for down payments as low as 0%.Footnote4
Additionally, through some state and local housing agencies, municipalities and nonprofit organizations, down payment assistance programs are available.
Support through commercial lenders
Many private lenders look to help first-time homebuyers by providing direct down payment assistance. Of course, private mortgage insurance (PMI) may be required on loans with down payments of less than 20%.
The following loan assistance programs, provided through Bank of America's Community Homeownership Commitment™, serve as examples of the help that may be available to your client.
- Down Payment GrantFootnote5 Program offers a grant of up to 3% of the home purchase price — up to $10,000 (whichever is less) toward a down payment. These funds do not need to be repaid. Available only in select markets; visit Bank of America Down Payment Center to learn more.
- Affordable Loan Solution® mortgage,Footnote6 designed for homebuyers whose household income cannot exceed their 100% Area Median Income, is a fixed-rate loan with a down payment as low as 3% and no PMI.
Also, if your client works for a large company or public institution, their employer may have an employer assisted housing program that offers aid to first-time homebuyers.
The good news is that down payment assistance is readily available. By helping your client weigh their goals with their ability to save for a down payment, they'll be able to determine their best course of action.
1 REALTORS® Confidence Index Survey, National Association of Realtors® Research Group, August 2020.
2 US Existing Single-Family Home Median Sales Price, YCharts, September 2020.
3 Monthly Mortgage Insurance Premiums (MIP) and Upfront Mortgage Insurance Premiums (UFMIP) apply. Maximum loan amounts vary by county. FHA mortgage insurance protects the lender (not the borrower) if a borrower defaults on the FHA loan. Each FHA borrower pays a Mortgage Insurance Premium. The premiums are collected and used by the FHA to reimburse the lender (not the borrower) should the borrower default and the lender must foreclose upon the loan/sustain a loss. This insurance enables a lender to provide loan options and benefits often not available through conventional financing.
4 VA funding fee applies except as may be exempted by VA guidelines. The fee is higher with a zero down payment, and maximum loan limits vary by county. If a down payment of 5% or more is made, the fee is reduced. The VA funding fee is non-refundable. Ask for details about eligibility, documentation and other requirements.
5 Qualified borrowers must meet eligibility requirements including, but not limited to, being owner-occupants, meeting certain qualifying income limitations and purchasing a home within a certain geographical area. Minimum combined loan-to-value must be greater than or equal to 80%. Program funds can be applied toward down payment only. Borrowers cannot receive program funds as cash back in excess of earnest money deposits. Down Payment Grant program may be considered taxable income, a 1099-MISC will be issued, consult with your tax advisor. May be combined with other offers. For properties not located in a low- to moderate-income census tract, the maximum borrower/co- borrower annual qualifying income limit is 80% of Federal Financial Institutions Examination Council Area Median Income. For properties located in a low- to moderate-income census tract, there are no income limits. These income limits are subject to change without notice. The home loan must fund with Bank of America. The Bank of America Down Payment Grant Program may only be applied once to an eligible mortgage/property, regardless of the number of applicants. Bank of America may change or discontinue the Bank of America Down Payment Grant Program or America's Home Grant Program or any portion of it without notice. Not available with all loan products, please ask
6 Maximum income and loan amount limits apply. Fixed-rate purchase loans, primary residences only. Certain property types are ineligible. Maximum loan-to-value (“LTV”) is 97%, and maximum combined LTV is 105%. For LTV >95%, any secondary financing must be from an approved Community Second Program. Homebuyer education may be required. Other restrictions apply.
7 Prequalification is neither preapproval nor a commitment to lend; borrower must submit additional information for review and approval.
8 Final loan approval is subject to satisfactory appraisal and title review and no change in borrower credit and financial condition. Preapproval is subject to terms and conditions and timely submission of required documentation; ask your Lending Specialist for details. Preapproval does not commit to the continued availability of the loan program. The interest rate shown in a preapproval is based on current market rates and is not locked. You may choose to lock an interest rate after we receive the complete and executed purchase contract. Borrower must submit purchase contract within 90 days of preapproval. If the rate at time of lock is higher, or a rate lock expires prior to funding, or for adjustable-rate loan programs when the index value rises, we must determine your ability to repay the loan at the higher rate, which may lower the loan amount or invalidate the preapproval. Not available on all loan products. Not available on refinance loans.