Owning a home is a cornerstone of the American Dream, but prospective first-time buyers must overcome numerous obstacles to achieve that goal.
But a recent survey by LendingTree found that it is not just obstacles people have to overcome, but misconceptions too. The largest result found by the study was that the majority of respondents stressed over saving for a down payment with many of that number further believing they had to meet a certain threshold before they even beginning their search for a home.
According to LendingTree Senior Economist Jacob Channel, the once-required down payment of 20% is now more of a suggestion than a rule and there are opportunities to get mortgages for a fraction of that.
“There’s no magic number for how much a person should put toward a down payment,” Channel says. “Twenty percent is often considered ideal, but most people put down closer to 10% or less, which goes to show that you can still get approved for a mortgage even if you can’t reach 20%.”
The top takeaways from the report include:
- Down payments hold back many from homeownership. 81% of prospective first-time buyers are stressed about affording a down payment. Further, 27% of those who’ve never owned a home but would like to say that down payments are the main barrier holding them back from homeownership. An additional 49% say down payments are one of many barriers.
- Misconceptions about how much a consumer should put down may be an additional barrier. More than a third of Americans—and 41% of those who’ve never owned a home—believe they must put down 20% to buy a home. However, an April 2022 report from the National Association of Realtors found that 44% of homebuyers put down less than 20%.
- Private mortgage insurance (PMI) can be confusing, and many Americans (60%) have no idea how to get rid of it. That could be because rules vary by lender—for example, some lenders will remove PMI by request once your loan balance reaches 80% of the home’s purchase price, while other lenders require you to refinance first. Still, 50% of Americans don’t want to put down less than 20% because they don’t want to owe PMI, which is required for lower down payments.
- Nearly a quarter (24%) of homeowners say their loved ones helped with their down payment, either as a gift (16%) or loan (8%). This surges to 37% among millennial homeowners. Among those who’ve never purchased a home but hope to do so, 21% expect financial assistance from family or friends.
- Nearly 30% of prospective first-time buyers hope to finance their down payment with a personal loan—but most lenders don’t allow this. Personal loans are prohibited as a down payment source for conventional and Federal Housing Administration (FHA) mortgages.
Click here to view the report in its entirety.