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Lenders an important source for homebuying, down payment advice

December 19, 2016 | By

Many would-be homeowners who believe saving for a down payment is a major obstacle to homeownership may be surprised by the National Association of Realtors’® (NAR) recent data.

The median down payment for first-time buyers is 6 percent for the third straight year, according to NAR’s annual Profile of Home Buyers and Sellers report, released Oct. 31. For repeat buyers, it was 14 percent for the third time in four years, according to the report.

Lender Opportunity

There may be opportunities for lenders to responsibly expand access to mortgage credit by addressing misunderstandings about how much at a minimum the borrower needs to put down.

According to the National Housing Survey®, a nationwide consumer survey by Fannie Mae’s Economic & Strategic Research Group, many respondents didn’t understand how much would be required for a down payment. About 40 percent of consumers completing the survey responded “don’t know” when asked about requirements for minimum down payments. Those who did provide answers were materially off, providing an average score of 12 percent.

Further, 76 percent of consumers weren’t aware of 3 to 5 percent low down payment programs like Fannie Mae’s HomeReady® mortgage. The respondents also had varying answers when it came to the minimum required credit score. Similarly, in another survey by NeighborWorks America, 77 percent of those with student debt never heard of or were not familiar with loan counseling programs from nonprofits.

Lenders play a central role in providing advice to homeowners, according to Fannie Mae’s survey. With the exception of Asian-American respondents, who ranked family and friends highest, consumers in general ranked lenders as the most important source of mortgage advice.

Read more: 3 lifestyle hacks to help you start saving for a down payment

Down Payment Help

The number of down payment programs administered by state and local housing finance agencies, nonprofits, and other housing organizations may also surprise potential buyers.

The number of those programs was 2,392 in the third quarter, down only 3 percent from the previous quarter, according to The Down Payment Resource’s Homeownership Program Index. And 87.9 percent of those programs have funds available for eligible homebuyers. The majority of these programs (64 percent) are for first-time homebuyers, according to the index.

In the costly city of San Francisco, for example, the Teacher Next Door Program provides up to $20,000 for down payment and closing costs to eligible educators with income limits up to 200 percent of the area median income.

Read more: Many teachers, other school workers can’t afford to live where they work

Leading States

The five states with the greatest number of down payment assistance programs are California (380), Florida (238), Texas (181), Maryland (84), and New York (79).

Nearly 70 percent of all these programs provide down payment or closing cost assistance, compared to, for example, Mortgage Cost Certificates (8 percent) that allow homeowners to claim a tax credit for part of a mortgage.

The variety of these programs may help households who feel stymied not just by daily expenses, but also by debt. From NAR’s survey, respondents reported that debt of all types delayed saving for a down payment for a median of three years.

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