Contact: MICA (202) 393 5566
Email: pat@micadc.org
Down Payment Is Biggest Obstacle To Buying a Home
Most renters will have trouble coming up with down payment
Washington, D.C. April 21, 2003 -- A new survey reveals that a majority of renters (51 percent) consider coming up with enough money to make a down payment the biggest hurdle to becoming a homeowner.Additionally, 84 percent of renters who plan to buy a home do not expect to make a 20 percent down payment, which is typically required by most lenders, according to the survey, which was sponsored by the Mortgage Insurance Companies of America (MICA).
The inability to make a 20 percent down payment means that these home buyers will need to find a financing alternative to a traditional mortgage. One popular alternative is cancelable private mortgage insurance (PrivateMI), which enables families to buy a home years sooner with as little as a 3 percent down payment, or less for qualified borrowers.
"Coming up with a down payment remains the greatest challenge for many families to overcome in buying a home," said Suzanne C. Hutchinson, MICA executive vice president. "Many prospective home buyers may not be aware that they can become homeowners years sooner with a low down payment and private mortgage insurance."
The survey also showed that a majority of renters (51 percent) believe it is important to be able to borrow against their home's equity in case of emergencies. Four out of ten (40 percent) say it is important to borrow against their home for home improvements, and one-fourth (26 percent) think it is important to be able to borrow money for educational expenses.
Some loan originators have been promoting split loan structures such as 80-10-10 or "piggyback" loans. In an 80-10-10 loan, the home buyer puts 10 percent down, borrows another 10 percent through a second mortgage (with a higher interest rate) and finances 80 percent through a conventional mortgage.
However, this type of loan structure can prevent homeowners from accessing their equity for emergencies, home improvements or educational expenses, which the survey shows as an important option for prospective buyers.
"Piggyback loans tie-up homeowners' equity and cost them more in the long run," Hutchinson said. 'PrivateMI is simply a better alternative for many home buyers because it is cancelable and offers more flexibility.'
Homeowners can also amass equity faster with PrivateMI because a greater portion of their monthly payment is applied to the principle balance of the loan instead of interest payments.
In addition, half of the survey's respondents (52 percent) said they wanted to pay the lowest total amount over the life of the loan. In many cases, a single loan with cancelable PrivateMI will cost less over the life of the loan than an 80-10-10.
Other key findings of the survey include:
- Males have saved significantly more money toward the purchase of a home than females ($15,300 vs. $9,700).
- On average, renters planning on buying a home believe they need a down payment of $17,800, though they have saved only $12,500.
- Renters expect to buy a home worth about $165,600, which is slightly above the national median price for a single-family unit.
The survey was conducted online in March 2003 and is based on 1,000 consumer respondents planning to buy a home in the next year.
To view the MICA Consumer Survey fact sheet click here