At a time when housing inventory is low in many places and affordability is tightening in cities across the country, a common down payment myth keeps rearing its head, making news and possibly deterring consumers from taking advantage of the ability to build their worth through homeownership.
The Home Buying Myth
We recently reported the results of a poll by Genworth Mortgage Insurance at the Mortgage Bankers Association Secondary Conference in which nearly a third of industry professionals said potential borrowers believe it takes a down payment of 20% to buy a home. While Millennials constitute the largest portion of the U.S. population at 87.5 million, only 1/3 of them are homeowners according to The 2017 State of the Nation’s Housing report by the Joint Center for Housing Studies at Harvard University.
Certainly income levels, housing inventory and other factors such as student debt and credit challenges play a role, but a mistaken belief that one must save a full 20% for a down payment could be keeping many consumers who could qualify for a home from even exploring the possibility. And there's no shortage of information that reinforces the misconception, such as a recent study and blog by Madison, Wisconsin-based apartment listing service, Abodo that contains this headline: "It could take Millennials decades to afford a down payment."
The Real Story of What it Takes to Buy a Home
Breaking down the math Abodo used to draw this conclusion, you'll find they used an average salary of $24,000 per year, an average home price of $278,337, a savings rate of 15% of annual income per year, and determined it would take 15.6 years to save a 20% down payment. Numbers like these are the real estate equivalent of "If it bleeds, it leads," and they tap into the "misery loves company" mentality of the public who isn't being given the full, true story.
The numbers check out in the Abodo scenario, but they depend on the assumption that the only available financing requires that hefty 20% down payment. Plug in Federal Housing Administration (FHA) or 3% down conventional financing and the time to save for a down payment drops to less than three years - a far less daunting timeline. And let's face it - Abodo is in the apartment business, so they want people to rent (and use their service) for as long as possible.
Marketing the Truth to Your Clients and Prospects
Mortgage and real estate professionals should be concerned and take steps daily to counteract what amounts to misinformation through each of their marketing methods and channels. Mortgage Loan Officers and Realtors know how many different down payment options and loan programs are out there, but just because this is common industry knowledge, doesn't mean it's made its way into the public consciousness.
Email drip campaigns, print collateral, social media and all other marketing that MLOs and Realtors do need to incorporate the message that "it doesn't take 20% down to buy a home." Industry professionals can't assume that the consumers we're marketing to know what we know. Whether you're co-marketing to different lead groups, reaching out to past clients or working your sphere of influence, don't forget to update the public on what's available, how you can help and extend the offer to talk with friends, family or coworkers who have questions relating to mortgage financing or real estate.
The "myth of the 20% down payment requirement" has gotten a lot of mainstream media attention as of late. Now is a great time to team up with your referral partners and get the word out in email, print, digital and social formats that there are many options available for different incomes, credit scores and down payment scenarios.
It may take some people years to save for a down payment or to be ready and comfortably able to purchase a home of their own; but people need to know what the real options are. Become a reliable source of valuable information through your marketing, and your message could save a consumer from wasting time and missing out.