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Don’t Need 20% to Get a Mortgage – but Maybe to Buy a Home

In April, half of mortgage homebuyers put down 20%; 25% of all buyers paid with cash. While buyers have low-down mortgage options, it’s not helping much these days.

NEW YORK – Would-be homebuyers are being priced out due to surging home prices, and a 5% down payment is often insufficient.

A National Association of Realtors® (NAR) survey found that half of April existing-home buyers who used mortgages put at least 20% down. Over the past decade, that 20% down segment has hit or topped 50% three times – and all have occurred since last fall.

That number doesn’t even include homebuyers who paid cash. In the same April report, NAR says 25% of existing-home buyers paid cash, the highest level in four years. Cash buyers have an edge because they don’t have to acquire mortgages, which can speed the transaction.

Meanwhile, the median existing-home price climbed 19% from a year earlier to $341,600 in April, mainly due to demand exceeding supply.

Agents say sellers sometimes worry that offers with smaller down payments are likelier to collapse during the loan-closing process. Many borrowers who can afford only small upfront costs get loans insured by the Federal Housing Administration or the U.S. Department of Veterans Affairs, and 27% of Realtors polled by NAR said sellers were unlikely to accept an offer with these loans due to their stricter closing conditions, and 6% more said sellers would reject such an offer.

Spiking home prices are also complicating appraisals, and some buyers end up paying more cash than anticipated.

Still, many buyers get offers accepted without making a 20% down payment. CoreLogic reported that first-timers who used mortgages paid 9.1% down, on average, year-to-date through mid-May – although even that’s up from 8.4% for all of last year. Repeat buyers paid 16.6% down on average.

Source: Wall Street Journal (06/19/21) Friedman, Nicole; Eisen, Ben

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