You Don’t Need That Much of a Down Payment

Many consumers are overestimating  the down payment they need in order to purchase a home, according to Christina Boyle, vice president and head of single-family sales at Freddie Mac.

Consumers believe they need 11 percent to 15 percent in order for lenders to approve them for a loan, according to a survey of renters and non-home-owners conducted by Zelman & Associates in New York. Thirty-nine percent say they need at least 15 percent of the purchase price in order to qualify for financing. Only 28 percent of respondents say they would even qualify for a mortgage.

But in reality, home buyers often can qualify for a conforming, conventional mortgage with a down payment of as little as 5 percent — and sometimes even 3 percent — Boyle writes. Between 2009 and 2013, Freddie Mac’s purchases of mortgages with down payments of less than 10 percent more than quadrupled. So far in 2014, more than one in five borrowers who took out conforming, conventional mortgages put down 10 percent or less.

“Letting more consumers know how down payments are determined could bring more qualified borrowers off the sidelines,” Boyle writes. “Depending on their credit history and other factors, many borrowers can expect to make a down payment of about 5 percent or 10 percent.” However, Boyle notes that any borrower who puts down less than 20 percent will be required to buy mortgage insurance.

Boyle says that buyers should also be encouraged by the abundant down-payment assistance programs that exist to help break into home ownership. Every state in the U.S., as well as many cities and counties, offer down-payment assistance programs for qualified borrowers, such as the American Dream Downpayment Initiative and HOME Investment Partnerships Program.