Making a down payment is one of the most important steps in the process when purchasing a Chicagoland home.
According to research, many people view their down payment as the biggest obstacle they will face on the road to buying a home. In fact, according to a study from consumer information site NerdWallet and Harris Poll, 44 percent of Americans who are considering purchasing a home said “a lack of down payment savings” is their biggest stumbling block to buying.
Part of the reason the down payment has earned such a reputation is that there are numerous myths and misconceptions out there, which tend to give buyers an inaccurate picture of this important piece of the home buying puzzle. Separating fact from fiction can help give buyers a better sense of the reality of making a down payment.
Down payment costs don’t need to be intimidating. Let’s take a look at three common misconceptions about down payments, which simply don’t hold water in today’s market:
1.) “You Need a 20 Percent Down Payment”
For many years, 20 percent was touted as the “magic number” for down payments. This belief still holds some sway today. In a survey by media research company Ipsos, for example, 36 percent of Americans polled thought that a 20 percent down payment was required to qualify for mortgage financing.
However, in practice, most people do not have to put 20 percent down in order to secure financing and purchase a home.
A recent study found that 60 percent of home buyers were able to finance their home purchase with a down payment of 6 percent or less. Similarly, in 2017, the median down payment on a home was 10 percent, according to data from the consumer education site Motley Fool. In Illinois and Chicagoland, there are many state and local programs that empower purchasers to secure a loan with as little as one to three percent down.
As Steve DiMarco, president of Key Mortgage Services, Inc., has explained:
“Loan regulations have loosened to allow for more consumers to purchase a home, as long as they can prove that they are capable of paying back the mortgage. Through a variety of programs, you can obtain financing for as little as three percent down.”
2.) “It’s Difficult to Get Down Payment Assistance”
There are a few longstanding misconceptions that tend to come up around down payment assistance. First, there is often a belief that down payment help is only available for first-time buyers. And then, there is a prevailing belief that down payment programs are extremely difficult to qualify for.
In reality, there are a wide variety of down payment assistance programs available, on the state, local, and federal levels, all designed to help buyers achieve their dream of ownership.
There are down payment programs for all types of home buyers, taking into account factors like income level, credit score, personal history, and more. Additionally, there are programs for current homeowners and first-time buyers alike.
To discuss all of your many options and determine what down payment assistance programs may be right for you, don’t hesitate to get in touch with a Key Mortgage Services loan officer.
3.) “You Can’t Use Gifts or Grants for a Down Payment”
While policies will vary from lender to lender, the reality is that many people in Chicagoland and across the country leverage personal gifts and grants in order to pay for some or all of their down payment. You simply don’t have to go it alone.
In fact, according to NerdWallet and Harris Poll, among people who had bought homes in the past five years, 14 percent of millennials and 19 percent of baby boomers and Gen X used family gifts as part of their down payment plan. A 2017 study found that “16% of home buyers received financial help from family members or friends,” according to Motley Fool.
Have Any Questions?
When it comes to purchasing a home, finding all of the answers about your down payment and financing can be both exciting, and a little overwhelming.
The real estate professionals at Baird & Warner will be able to guide you through the home buying process, answer all of your questions and hopefully make your transition to homeownership as smooth as possible. Even better, for the past 30 years, Baird & Warner has been offering residential sales, mortgage, and title services all under one roof – because we know it provides our clients a more efficient, accountable, and trustworthy experience.