Mortgage Facts: The Connection Between Average Down Payment and Sales Price

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April 16, 2015 | By RGR Marketing Blog

Do You Really Need Twenty Percent Down Payment?

How much do you really need to make a down payment on a house? Conventional wisdom holds that 20% is the sweet spot, and that's been the going rate for a long time. At 20% down, mortgage customers are able to get the most affordable rates on their mortgage loans.

Of course, not everyone who dreams of owning a home can afford to set aside one fifth of the home’s asking price. Given recent average new home sales prices of around $340k, they’d be looking at around $68,000 down, which is a sizable chunk of money. This is especially true for young, first-time home buyers who are just starting to get financially established.

Low Down Payment Loans

As you know, many folks who are interested in homeownership but can’t afford big down payments are taking advantage of loan programs that allow for smaller initial financial outlays. In the 25 lowest-priced counties in the country, the average down payment was just 12%, and figures below that are not at all uncommon. We’ve even seen the return of zero-down programs, and down payment assistance programs are available in most markets.

High End = Big Mortgage Down Payments

In contrast, down payments in the country’s most expensive markets tend to be closer to 25%, which allows these purchasers to avoid the added cost of private mortgage insurance.

Those with the financial wherewithal to make sizable down payments are less likely to default on their mortgages, so they’re able to sidestep the added costs of PMI.

The Advantages of Making Greater Down Payments

Even with the wealth of assistance programs and low down payment mortgages available on the market, those who can afford to put more down than they’re required to may want to consider doing so.

The most obvious advantage to putting a sizable amount down has already been mentioned: down payments in excess of 20% don’t require mortgage insurance.

The other benefit to putting more money down is that it helps buyers secure they homes they’re interested in. This is certainly the case in upscale markets, where competition for desirable properties is fierce, but it also holds true in more affordable markets.

All else being equal, if a seller is given a choice between a buyer with a 3% down payment and one who can afford to plunk down 15%, they’ll almost invariably choose the latter. And why wouldn’t they? It’s a lower-risk decision with a more immediate payoff.

Save Your Pennies

If your customers are considering purchasing in a highly sought after market, they had better be prepared to put their money where their mouths are.

Your prospects may come from purchased mortgage leads or ones that you've found via referral. And no matter how those leads found their way into your marketing pipe, it’s not a bad idea to advise them to save up as much as they can for a down payment, whether your prospective clients are considering purchasing a home in Seattle, WA or Montgomery, TN. They’ll save money in the long run, and they’ll be more likely to land their dream homes.

[Photo Via: Expert Beacon]

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Low Down Payment Loans

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