Lack of Downpayment Cited As Leading Reason More People Aren't Purchasing New Homes
SILVER SPRING, Md.-Spring and summer tend to be the big home-buying seasons, but if one recent poll is any indication, mortgage lenders may not have a whole lot to look forward to this home buying season.
In recognition of June as National Housing Month, the National Foundation for Credit Counseling polled consumers regarding their ability to meet the downpayment requirements associated with buying a home in today's market (see related story, page 1).
Of the more than 2,000 respondents, almost half (49%) said they'd never be able to save enough money for a downpayment on a home. NFCC said this is "discouraging news" for the housing market in general, lenders, potential buyers and existing homeowners.
The online survey question, answers and results were:
If I were to buy a home today, I would: A. Have no trouble coming up with a 20% downpayment (12%); B. Need a loan that allowed a much lower downpayment (20%); C. Have to borrow the downpayment money regardless of how much is required (18%); D. Never be able to save enough money for a downpayment (49%).
Historically, NFCC said, finding the money for a downpayment was only a problem for first-time home-buyers. After buying the first home, between the equity growing due to making monthly house payments and the value of the house appreciating, buyers could satisfy the downpayment requirement on the new home from the proceeds of the sale of the former house.
But in today's market, this often is no longer the case. The problem has now spread to those who currently own a home, NFCC said, noting that many mortgages are underwater. Thus, even if the homeowner is able to sell their current house, there may be no profit available to satisfy the downpayment on the next home. In effect, what was once "the American Dream" has become something of a ball and chain.
"With the average home price in America just below $200,000, a 20% downpayment is near $40,000, a nice chunk of change by any standard, said Gail Cunningham, spokesperson for the NFCC. "Some may still be able to obtain an FHA loan with a low down-payment requirement, but those with poor credit will likely have to put a larger amount down."
And it could be quite some time before the dream returns, Cunningham added. "Even with the economy improving, considering the staggering number of people who are out of work and those whose retirement plans have been decimated, buying a home may no longer be a part of the American Dream, at least not in the near future."