Citing a recent study by Zelman & Associates, Freddie Mac Vice President of Single Family Sales and Relationship Management Christina Boyle said most home buyers believe they’ll need equity of 11 to 15 percent.
“It's a wakeup call to the housing industry that we have more to do to let the next generation know they can get a conforming, conventional mortgage with a down payment of as little as 5 percent (sometimes with as little as 3 percent coming out of their own pockets),” Boyle wrote in a blog on the Freddie Mac website.
According to Boyle, 39% of those surveyed estimated that the minimum down payment requirement would be at least 15% of the purchase price.
“This includes large percentages of people who should be in their prime homebuying years,” Boyle wrote. “Specifically, 38 percent of 25-29 year olds and 42 percent of 30-34 year olds said lenders demand minimum down payments of 15 percent.”
That could mean that 60-72% of the “first-time home buyer” demographic may not realize they could get a conventional mortgage with a low down payment, Boyle wrote.
“Letting more consumers know how down payments are determined could bring more qualified borrowers off the sidelines,” Boyle wrote. “Depending on their credit history and other factors, many borrowers can expect to make a down payment of about 5 or 10 percent.”
Prospective home buyers consistently overestimate the size of the down payment they’ll need to finance a home, according to Freddie Mac.