A recent report shows that first time homeowners, especially the millennial generation, purchased their home with a small down payment. The report states that in January. 65% of those first time buyers made a cash down payment of 6% or less. Also interesting is that among all homebuyers, regardless of age, 65% made a down payment of less than 20%. This number is also consistent with December.
The market seems to be experiencing the long awaited entrance of millennial buyers into the market, as they accounted for 84% of all closed loan in January. This tells me that these younger buyers have either been unsuccessful in saving the traditional 20 % down payment, or they are electing to borrow instead of using their cash. Possibly they feel that they can invest their money and earn higher income than they will be paying on the mortgage. Either way, they seem to have the necessary income to support that debt.
FHA loans were used in 35% of the purchases. FHA loans typically require lower credit scores, and can be had with as little as 3.5% cash down. But regardless of whether the loans are FHA or conventional, a mortgage with less than 20% down requires the mortgagee to pay some form of mortgage insurance. This mortgage insurance can easily add hundreds of dollars onto the monthly mortgage payment.
If you, or one of your children are one of the many millennials planning to purchase a home this year, contact a real estate professional who can help guide you through the process.