Numbers Count: Options for down payment help

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Numbers count. They matter to bankers and to prospective homebuyers, sellers, and real estate professionals. Here’s my take on the key numbers on the housing market this week.

The numbers: Concerns over affording a down payment

Young couple walking up stairs to front door, passing a business woman who has stopped to talk. [1]Research from the Federal Reserve [2] found that 81% of renters say they would prefer to own their home if they could afford to do so. Asked why they do not own their home, 50% of renters answered that they cannot afford a down payment — this was the leading response, according to the Fed’s Report on the Economic Well-Being of U.S. Households in 2014 released May 25.

What counts: With 50% of renters who would like to buy saying they can’t afford a down payment, this is a good opportunity to remind potential buyers that when thinking about a down payment, the magic number may be 3%. That is because, this year, there are new loan programs [3] to help first-time buyers and others who may have limited funds for a down payment.

Many banks are now offering 3% down mortgages through programs launched this year by Fannie Mae and Freddie Mac. Though they do not provide mortgages, Fannie Mae and Freddie Mac have a big influence on mortgage lending. They acquire loans from banks, including Bank of the West, so their willingness to acquire 97% loan-to-value (LTV) mortgages helps encourage banks to issue these mortgages.

Freddie Mac’s program Home Possible Advantage [4] is a conforming, conventional mortgage with a 3% down payment requirement designed to help first-time buyers and other qualified borrowers with limited down-payment savings. Fannie Mae has a similar 3% down payment program.

For qualified borrowers, there may be other options to buy a home without coming up with a 20% cash down payment. Of course, putting cash down of 20% offers potential advantages, such as removing the added cost of mortgage insurance and lowering a buyer’s monthly mortgage payment.

The important point is there are options for those who think they are ready to buy a home. I’ll close with an encouraging data point from the Fed report for renters who want to own: One- third of the renters surveyed by the Fed in 2013 who were looking to buy a home actually bought a home within the following year.

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