Can Low Down-Payment Mortgages Compete in Today’s Market?

By October 3, 2016News, Uncategorized

Despite an increasing proliferation of low down-payment mortgages, first-time homebuyers still believe they must put 20 percent down to compete in today’s market. But that’s not accurate given current market conditions, say real estate agents nationwide.

Redfin surveyed 762 real estate agents from 38 states and Washington, D.C., between Sept. 15 and Sept. 18 and found that more than half said the typical down payment for successful buyers in their market was less than 20 percent. In fact, one-in-four agents said a down payment between 3 percent and 5 percent was typical among successful buyers.

According to Redfin, success with a low down payment is possible even in highly competitive markets. The survey found that 22 percent of Redfin agents in California (notorious for its bidding wars and high prices) said their clients were successful with 3 percent to 5 percent down.

“The conditions that challenged first-time and millennial homebuyers this spring are starting to ease,” says Redfin chief economist Nela Richardson. “There are fewer bidding wars and less of a need to escalate significantly above the list price to get an offer accepted.”

Richardson explained that the pace of the market also is slowing, which helps buyers since they can now afford to be patient.

The latest report from CoreLogic recorded that cash sales fell to less than 30 percent for the first time since the housing crisis began. And sellers also are adjusting and learning about the growth of low down-payment products. About 61 percent of respondents said they had advised sellers that the highest offer is not necessarily the best.

“Sellers are getting used to the idea that all-cash buyers and investors have given way to traditional buyers who need financing to purchase a home,” says Richardson. “They are demanding less from buyers than they were just a few months ago, which means a wider spectrum of buyers and down payments can be successful now.”