A new study proves something many may already know: Saving for a down payment for buying a home is the biggest hurdle for would-be home owners. However, the study reveals some facts you may not have known about down payments.
First, down payments are particularly hard for millennnials, the largest single group of home buyers and the biggest group of first-time buyers, according to the Zillow Group Consumer Housing Trends Report 2018.
Millennial buyers also are the most likely to put less than 20% down. When they decide to buy a home — one of the biggest investments ever for many Americans — millennials are most likely to use multiple funding sources for the down payment. Nearly half used a gift or loan from family or friends for at least some of their down payment, making up one-fifth of the down payment on average. They also use investments and retirement funds toward down payments.
Zillow also reported coming up with a down payment can be a game-changer. For instance, it can help make a monthly mortgage payment that is affordable and does not bust your bill-paying budget.
The Zillow report surveyed people in Atlanta, Chicago, Phoenix, San Francisco, and Washington, D.C., including 3,000 home buyers. They were asked about their down payment decisions, including how much they put down and where the money came from.
Here are other revelations from the report:
-First-time buyers are more likely to cash out investments or use retirement funds toward a down payment.
-Putting 20% down is conventional wisdom, but fewer than half of buyers do so.
-Buyers in Atlanta put down less than 5% more often than they put down at least 20%, boosting the risk of becoming underwater on their mortgages.
Yet, buyers in Chicago, San Francisco and Washington, D.C. are at least as likely as the typical national buyer to put down at least 20%.
Research from Zillow disclosed it takes over seven years for a typical American home buyer to save a 20% down payment on the typical-valued home.
Of course, buyers can put much less down than that amount. Saving up for a down payment can be tough and requires good budgeting and long-term planning, especially when for many the cost of rent and everyday life outpaces what they are able to put in the bank.
Even if you don’t have plans to buy a home in the next year or two, it never hurts to start setting aside savings for a future home purchase,” Zillow senior economist Aaron Terrazas stated.
“There are many mortgage options that require less than 20% down, but buyers should be careful that they don’t set themselves up to be underwater. Interest rates are rising, of course, but for many, waiting a bit longer and saving for a larger down payment might still be the way to go as they weigh their current stability and housing needs against their long-term future.
If your goal is home ownership, check out some more great advice about purchasing a home:
-INSIDER TIPS FOR AFRICAN AMERICANS LOOKING TO PURCHASE A HOME
-HOME OWNERSHIP: IT’S NOT THE SIZE OF THE HOME, BUT THE SIZE OF THE DREAM
-GOOD SIGN FOR BUYERS: HOUSING INVENTORY GROWING AGAIN