If there is one area in real estate that confuses potential home buyers, it’s the preconceived notion that you are required to make a 20% home loan down payment. Consumers, particularly millennials and first-time home buyers, are tentative about taking the plunge toward home ownership due to this belief, according a recent survey (Profile of Home Buyers and Sellers) by the National Association of REALTORS (NARS).
This perception runs contrary to data collected by NARS over the past 35 years. The data indicates that the average median down payment for first-time buyers is five percent on average.
“It’s possible some of the hesitation about buying among young adults is from them not realizing there are mortgage financing options available that do not require a 20 percent home loan down payment.
Consumers are wary about their ability to save the funds they believe they will need for a down payment, with house prices and rent continuing to rise each month. According to the NARS survey, 19 percent of current homeowners stated that they have received financial assistance toward a down payment from a parent or relative. Of these, most were age 34 or younger, living in the Northeast, or living in an urban area.
Still, the NARS survey found that the appetite for home ownership remains strong, with 78 percent of homeowners and 60 percent of renters saying now is a good time to buy.
Loan Officer Teresa Parker of Cunningham & Company Mortgage Bankers agrees. Parker is a preferred lender with NC Housing and has extensive experience working with the organization’s affordable housing products for her clients. “Many clients are not aware that for eligible borrowers, a down payment could be as little as 3 percent,” she said. “In addition, there are both loan and down payment assistance programs I can help my clients obtain that, combined, can provide home financing at close to 100 percent.” These down payment assistance programs are not necessarily limited to first-time home buyers. Move-up buyers may also take advantage of these programs, if eligible.
Parker also points out that eligible first-time home buyers can obtain the Mortgage Tax Credit (MCC) along with their loan closing, which enables eligible first-time buyers and military veterans to save up to $2,000 a year on their federal taxes. In addition, consumers who buy homes in certain targeted census tracts may be eligible for the MCC program, even if they are not first-time home buyers. The MCC leaves homebuyers with more money to put toward their mortgage payment. “If you qualify, you can claim a federal tax credit for 30% of the interest you pay on an existing home (50% on new construction)—up to $2,000 per year for every year you live in your home,” says Parker.
Am I Eligible To Make Less Than a 20% Home Loan Downpayment?
You may be eligible for a Mortgage Credit Certificate if:
- You are a first-time home buyer or military veteran
- You meet the income and sales price limits
- You are purchasing a new or existing home in North Carolina
- You occupy the home as your principal residence within 60 days of closing
- You are a legal resident of the United States
What Properties are Eligible?
- New and previously owned single-family homes
- New or used manufactured homes