Where Today’s Down Payment Comes From

With the housing crash in the wake of the financial industry meltdown, gone are the days when most homebuyers could squeak by with a tiny down payment. Today, many lenders require a minimum down payment of at least 20 percent – which begs the question, where are buyers getting the extra funds needed nowadays?

According to the National Association of Realtors’ Profile of Home Buyers and Sellers 2005-2010, 66 percent of recent homebuyers used savings for the down payment on their home purchase, up from 50 percent in 2005. Receiving a gift from a friend or relative has increased as a down-payment source among all buyers, from a low of 9 percent in 2006 to a high of 18 percent in 2010.

“Savings are providing the bulk of down payments, but people are also asking their families to step up and gift or lend them money to meet the strict financing guidelines that banks are following,” said Perrine Knight, a commercial and residential broker with Baird and Warner in Chicago.

“I would also advise researching any down-payment assistance programs and grants in your county and state that buyers could possibly qualify for,” said Sam Bass, a broker with Acadia Realty in Atlanta.

The down payment isn’t the only fund you need to be concerned about. To ensure that you have enough salted away for down payment and closing, Knight recommends raising at least 25 percent of the home’s price if you’re purchasing below $417,500 and 30 percent or more for any property that’s more costly. Home shoppers who qualify also may want to pursue a mortgages loan insured by the Federal Housing Administration FHA, which requires only 3.5 percent down.


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