September 19, 2021

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Mortgage News

Down payments remain the biggest obstacle for buyers

Mike Miles at Fountain Mortgage will guide you through the mortgage process.

From Mike Miles

When it comes to qualifying for a mortgage, what is considered the biggest barrier to entry? Creditworthiness, Job Security, or Down Payment? The poll says? Deposit. According to the Zillow Housing Aspirations Report (ZHAR), a biannual survey of 10,000 people, saving for a sufficient down payment has been the biggest obstacle for tenants moving into their homes. About 70 percent of those questioned were of this opinion.

This made me wonder (which is dangerous) whether this opinion was based on fact or perception. Chances are, the majority of respondents are unaware of the actual homeownership down payment requirements. It is also possible that some of the respondents will refuse to buy a home until a certain amount of equity has been saved. Regardless of whether one or both of the reasons are involved, it is a good opportunity to review the topic.

Here is an overview of some low deposit options:

  • FHA Loans – Allows borrowers to pay 3.5 percent for home purchases

  • Traditional Loans – Allows creditworthy borrowers to deposit as little as 1 to 3 percent.

  • Fannie Mae 97% – Allows creditworthy borrowers to cut 3 percent on home purchases

  • Freddie Mac’s Home Possible – Allows creditworthy borrowers to save 3 to 5 percent with discounted mortgage insurance for homes that meet certain criteria.

  • Fannie Maes HomeReady – this is basically Fannie Maes version of the Freddie Mac Home Possible loan.

Let’s visualize this using the Fannie Mae 97% program. If a buyer has a home purchase price of $ 190,000, the 3 percent down payment required is $ 5,700. While this isn’t pocket money, it can open the eyes of potential homebuyers who thought they had to save 10, 15, or 20 percent to use it as a down payment.

It can be difficult to come up with a monthly budget to save on a down payment. This is even more true when you rent considering that in normal years it is more expensive than owning a house as rents keep rising.

Remember, saving for home ownership isn’t a sprint. Take some time to develop a strategy and build a solid foundation. If your lease expires in a few months, you should speak to your landlord about a shorter extension, e.g. My suggestion is to first find out about a payment term that will help you land in a target price range. From there you can calculate the required deposit amount. Once you have both of these pieces of information, you are ready to create your savings goal.

If you want to go through your specific scenario, timeframe, and purchase goals, give Fountain Mortgage a call. We are always happy to crack the numbers for you.