Home OwnershipSupplements

Decoding the Down Payment

When it comes to buying a home, one of the things that always seems to give potential buyers pause is the worry about how much they need to have saved for the down payment and closing costs.

Certainly, buying a home is a major financial commitment, and lenders expect potential buyers to show their investment in the purchase by being willing to use some of their own money to help fund the purchase.

However, the Black community has traditionally fallen behind other racial and ethnic groups in homeownership rates, with the down payment being a significant hurdle. Racial inequity has also created a wealth gap that makes it harder for Black families to build savings or put forth a down payment.

Having tools, strategies and facts to approach the down payment is a good way to plan for your home purchase and take some of the worry out.

To start, many potential buyers don’t know how much money they need.

According to the 2019 Profile of Home Buyers and Sellers by the National Association of Realtors®, the median down payment for homebuyers is 12 percent of the purchase price — which would be $24,000 for a $200,000 home, for example.

The Urban Institute, using Freddie Mac data, shared in a recent report that more than 1.7 million mortgage-ready young Black renters could afford a median-price home in the 31 most-populous metropolitan statistical areas if they could come up with a 10 percent down payment.

So, if you don’t already have significant savings in the bank, where do those funds come from?

A number of programs are available — offered both through lenders and in many local communities — that can help substantially reduce the amount of up-front cash you need to buy your home. We work with customers to pick a loan option that meets their needs and layer in programs designed to help with the down payment and closing costs where possible.

Let’s start with loan options. The old adage is that you need 20 percent down to purchase a home, and that really isn’t so. Most lenders offer low down payment options that help potential buyers get past the down payment hurdle. Our Dream. Plan. Home. Mortgage allows for as little as 3 percent down for borrowers with household income at or below 80% of the area median income.

We also offer VA loans, which don’t require a down payment at all for customers who meet all eligibility requirements. A home mortgage consultant can discuss current VA eligibility requirements, Dream. Plan. Home. Mortgage eligibility requirements, and other loan options that may be available to you.

As you consider loan options, it’s important to know that if you decide to make a lower down payment, your monthly payment will likely be larger and you may need to purchase private mortgage insurance, often referred to as PMI. You will need to balance the down payment against what you want your monthly payment to look like and make a decision about what works for you and your budget.

Another thing to look for is down payment assistance programs, one of which is Wells Fargo NeighborhoodLIFT and other LIFT programs, a collaboration with the Wells Fargo Foundation, and NeighborWorks® America and its network members. The program has helped more than 24,700 Americans become homeowners through down payment assistance.

Some lenders offer closing cost credits as well, such as the up to $5,000 credit we offer in parts of the Washington, D.C., area to help cover non-recurring closing costs for eligible buyers with low- to moderate-income.

Finally, you may be able to use a gift from a relative, friend, employers or nonprofit organization — a gift can be included in your down payment as long as the funds are not expected to be repaid. While many of us can’t rely on this as a way to pay for a down payment, it’s always heartening when a friend or relative wants to help you on your homebuying journey whether it’s a one-time gift or an inheritance.

The down payment can be a hurdle in homebuying, no doubt. While this is important area for more focus by lenders, policymakers and more, there are resources and programs available now that can help. If this part of buying a home gives you worry, reach out to your lender or lender or a HUD-approved (U.S. Department of Housing and Urban Development) housing counselor to talk about your situation. Don’t let the down payment stand in your way.

Our House: Keeping Homes Black-Owned in D.C.’s Ward 7 and 8

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