More than half of Americans say they would prefer to put 10 percent down on a home purchase rather than 15 percent, 20 percent, or 30 percent, according to mortgage banker American Financing’s 2017 Mortgages in America Survey. The 10 percent down payment option was the lowest among the choices respondents were given in the survey. It also was the most popular choice across generational divides, including millennials, Generation Xers, and baby boomers.
Read more: The Down Payment Myth
The average down payment on a home purchase in 2016 was 11 percent, according to the National Association of REALTORS®’ 2017 Aspiring Home Buyers Profile. Borrowers under the age of 35 put down an average of 8 percent, according to NAR’s report.
Many respondents to American Financing’s survey acknowledge that they do not fully understand the basics of how mortgages work. Nearly a quarter—primarily millennials—say they lack understanding about interest rates and private mortgage insurance. Further, “while affordable programs allowing a 10 percent down payment are available and provide an attractive option to prospective home buyers, it’s important to consider other factors, like private mortgage insurance, which can play a significant role in the overall cost of a home,” says Carrie Niess, business analyst at American Financing. “For instance, the lower the down payment, the higher private mortgage insurance costs can run.”
Some additional findings from the study:
Source: “The Mortgages in America Survey,” American Financing (2017)
New homes are expected to be a “primary driver of sales in 2018,” as 1.33 million housing starts are predicted next year—up from 1.22 million in 2017, according to Freddie Mac’s September Outlook report, which gauges future real estate activity. Total home sales are expected to increase about 2 percent from 2017 to 2018, according to the report.
Economists also predict that the uptick in housing starts, coupled with a moderate increase in mortgage rates, will help slow the run-up in home prices next year. Freddie Mac forecasts a 4.9 percent increase in home prices in 2018, lower than the 6.3 percent growth seen so far this year. Mortgage rates also are up from near-record lows in 2016, prompting predictions that refinancings will fall to 25 percent of mortgage activity in 2018—the lowest share since 1990, according to Fannie Mae.
Still, homeowners likely will continue building equity next year. In the second quarter of 2017, the dollar volume of equity cashed out was $15 million, up $1.2 million from the first quarter. As home prices rise, cash-out activity has been rising, too.
“The economic environment remains favorable for housing and mortgage markets,” says Freddie Mac chief economist Sean Becketti. “For several years, we have had moderate economic growth of about two percent a year, solid job gains, and low mortgage interest rates. We forecast those conditions to persist into next year.”
Source: “Looking Ahead to 2018,” Freddie Mac Outlook (Sept. 21, 2018)