Is a 20% Down Payment Really Necessary To Purchase a Home?

There’s a common misconception that, as a homebuyer, you need to come up with 20% of the total sale price for your down payment. In fact, a recent survey by Lending Tree asks what is keeping consumers from purchasing a home. For over half of those surveyed, the ability to afford a down payment is the biggest hurdle.

That may be because those individuals assume a 20% down payment is necessary. While putting more money down if you’re able can benefit buyers, putting 20% down is not mandatory. As Freddie Mac puts it:

“The most damaging down payment myth—since it stops the homebuying process before it can start—is the belief that 20% is necessary.”

If saving that much money sounds overwhelming, you might be ready to give up on the dream of homeownership before you even begin – but you don’t have to. According to the Profile of Home Buyers and Sellers from the National Association of Realtors (NAR), the median down payment hasn’t been over 20% since 2005. It may sound surprising, but today’s average down payment is only 12%. That number is even lower for first-time homebuyers, whose average down payment is only 7%.

Based on the Home Buyers and Sellers Generational Trends Report from NAR, the graph below shows an even closer look at the down payment percentage various age groups pay:

As the graph shows, the only groups who put 20% or more down on average are older homebuyers who likely can use the sale of an existing home to fuel a larger down payment on their next home.

What does this mean for you?

If you’re a prospective homebuyer, it’s important to know you don’t have to put the full 20% down. And while saving for any down payment amount may feel like a challenge, keep in mind there are programs for qualified buyers that allow them to purchase a home with a down payment as low as 3.5%. There are also options like VA loans and USDA loans with no down payment requirements for qualified applicants.

To understand your options, you do need to do your homework. If you’re interested in learning more about down payment assistance programs, information is available through sites like downpaymentresource.com. Be sure to also work with a real estate advisor from the start to learn what you may qualify for in the homebuying process.

Bottom Line

Don’t let the myth of the 20% down payment end your homebuying process before it begins. If you want to purchase a home this year, reach out to a trusted real estate professional to start the conversation and explore your options.

Source: Keeping Current Matters | The KCM Crew 09222021

Home Price Appreciation Is Skyrocketing in 2021. What About 2022?

One of the major story lines over the last year is how well the residential real estate market performed. One key metric in the spotlight is home price appreciation. According to the latest indices, home prices are skyrocketing this year.

Here are the latest percentages showing the year-over-year increase in home price appreciation:

• The House Price Index (HPI) from the Federal Housing Finance Agency (FHFA): 18.8%
• The S. National Home Price Index from S&P Case-Shiller: 18.6%
• The Home Price Insights Report from CoreLogic: 18%

The dramatic increases are seen at every price point and in all regions of the country.

Increases Are Across Every Price Point

According to the latest Home Price Index from CoreLogic, each price range is seeing at least a 19% increase year-over-year:

Increases Are Across Every Region in the Country

Every region in the country is experiencing at least a 14.9% increase in home price appreciation, according to the Federal Housing Finance Agency (FHFA):

Increases Are Across Each of the Top 20 Metros in the Country

According to the U.S. National Home Price Index from S&P Case-Shiller, every major metro is seeing at least a 13.3% growth in prices (see graph below):

What About Price Appreciation in 2022?

Prices are the result of the balance between supply and demand. The demand for single-family homes has been strong over the last 18 months. The supply of houses available for sale was near historic lows. However, there’s some good news on the supply side. Realtor.com reports:

“432,000 new listings hit the national housing market in August, an increase of 18,000 over last year.”

There will, however, still be a shortage of supply compared to demand in 2022. CoreLogic reveals:

“Given the widespread demand and considering the number of standalone homes built during the past decade, the single-family market is estimated to be undersupplied by 4.35 million units by 2022.”

Yet, most forecasts call for home price appreciation to moderate in 2022. The Home Price Expectation Survey, a survey of over 100 economists, investment strategists, and housing market analysts, calls for a 5.12% appreciation level next year. Here are the 2022 home appreciation forecasts from the four other major entities:

1. The National Association of Realtors (NAR): 4.4%
2. The Mortgage Bankers Association (MBA): 8.4%
3. Fannie Mae: 5.1%
4. Freddie Mac: 5.3%

Price appreciation is expected to slow in 2022 when compared to the record highs of 2021. However, it is still expected to be greater than the annual average of 4.1% over the last 25 years.

Bottom Line

If you owned a home over the past year, you’ve seen your household wealth grow substantially, and you’ll see another nice boost in 2022. If you’re thinking of buying, consider buying now as prices are forecast to continue increasing through at least next year.

Source: Keeping Current Matters | The KCM Crew 09092021