Down payments may be the biggest roadblock potential homebuyers feel when initiating the homebuying process. A recent Freddie Mac Survey found that if a 20% down payment was required, 70% of those who were planning to buy a home within the next three years said it would delay them from purchasing and nearly 30% indicated they would never be able to afford a home.
How are Homebuyers Affording A Down Payment?
The way homebuyers have traditionally afforded a down payment is evolving. The primary findings on how homebuyers used various sources to make a down payment in 2016 versus prior years include:
1. 70% of homebuyers used savings/inheritance/other assets or retirement monies, down from 79% in 2013.
2. 31% of homebuyers used proceeds from the sale of another property, up from 23% in 2013.
3. 10% of homebuyers used assistance or a loan from a nonprofit or government agency, up from 5% in 2013.
4. The share of homebuyers who used a gift or loan from family and friends has been constant since 2013 at nearly 25%.
5. The share of young adult borrowers aged 25-34 with a co-borrower aged 55+ has increased since 1994 in Freddie Mac’s Portfolio of purchased loans.
Although there are many programs and types of loans to help new homebuyers tackle or avoid a down payment, there is one family-friendly way many are getting over this perceived hurdle. Those who couldn’t save for the entire down payment turned to family and others for assistance.
While saving up for a down payment can feel like a lofty goal, studies demonstrate that down payments don’t just come from personal savings. Families provide more than emotional support when loved ones buy a home. During this overwhelming and exciting time, it has been shown that families play a key financial role.
Financial Help for Homebuyers from Loved Ones
Loved ones are changing the homebuying game. Since 2013, the share of homebuyers who used a gift or a loan from family and/or friends has remained constant at nearly 25%.
Beyond gifting money for down payments, family & friends can contribute to an individual’s goal of homeownership through various avenues. A family can assist a homebuyer by co-signing for the mortgage or listing themselves as a co-borrower.
A co-signer is somebody who applies for a loan with the homebuyer and agrees to pay off the debt if they stop making payments. The addition of the co-signer may help to shore up the primary borrower’s financial profile, including their debt or low credit score.
A co-borrower is any additional borrower who agrees to share in the obligation to repay the loan and whose name appears on the title of the property. A co-borrower is different than a co-signer in that a co-borrower not only takes responsibility for the debt should the borrower default but also shares ownership in the property. Combining income with a co-borrower or cosigner allows borrowers to qualify for a higher loan amount.
Buy Your Dream Home & Don’t Go it Alone
Freddie Mac found that the share of young adult borrowers with a co-borrower aged 55+ has increased since 1994. It seems family support as either a co-signer or a co-borrower is becoming more critical for first-time buyers. Reminding first-time homebuyers that they don’t have to “go it alone” may help them realize the dream of homeownership sooner rather than later.
Eagle Home Mortgage is your family in lending. We understand the mortgage process seem like it'd be confusing. That’s why we provide a simple step-by-step digital process and experienced Loan Officers to help guide you. Doubting you have enough saved up for a down payment? We can introduce you to Down Payment Assistance Programs. Worried about your credit? We’ll help you understand your credit and assist you in overcoming those credit hurdles. Buying a home is a huge milestone and Eagle Home Mortgage is here to make sure you don’t have to go at it alone!