Study: Home Price Gains Add an Extra Year to Save for Down Payment

Average American saves almost eight years for a 20% down payment

Consumers socking dollars away for house down payments “are the people who can,” says Skylar Olsen, principal economist at real estate startup Tomo in a recent Bloomberg article, .  “Folks who have a lot of rent burdens tend to save nothing, and there’s always a fairly sizable share of the population who have a pretty substantial rent burden.”

To amass a 20% down payment, the typical American now requires nearly eight years to save up, says a Tomo study.  This is an increase from 7.1 years in January 2020.

This savings rate is based upon monthly savings of 10% of income, notes National Mortgage News, “which is high for most consumers.”

Home price gains were up 17.2% annually in June, versus 15.2% in May and 4.5% the year before.  This figure reflects a 42-year high--the quickest annual pace since 1979.

It is further expected that by June 2022 prospective home buyers will see additional price increases of about 3.2%.

“The down payment is getting harder and harder to build up over time,” notes Olsen.  “That means plenty of first-time buyers need low down payment options like never before to pull off their purchase.  First time buyers increasingly turn to their mortgage lenders to understand all their options.”

“…To keep up with the down payment under this kind of appreciation is exhausting,” says Olsen.

As Olsen suggests, there are loans that do not require a 20% down payment.  An article at studentloanhero.com tells buyers, “You can secure financing for a property with anywhere from 0% to 10% down, at the possible expense of a larger loan balance and monthly  private mortgage insurance (PMI) payments.” 

FHA loans (minimum 3.5% down); USDA loans (0% down); and VA loans (0% down) are a few options for borrowers meeting various criteria.  Contact your lender for specifics on these and other types of loans that require less than 20% down.

Some practical savings tips for aspiring home buyers can perhaps curtail some of the weariness for those wanting to save up, no matter what the desired savings amount might be:

·         Create a savings goal with good understanding of things to save for, including the down payment, costs to close (about 2-5% of the total loan amount), and moving expenses.

• ·         Trim your budget in places like auto insurance costs, refinancing student debt, cancellation of unused subscriptions, and bundling of telecommunications services.
• ·         Automate your savings to maximize savings opportunities—automatic transfers to savings accounts keeps “money out of reach for immediate spending.”
• ·         Sock away windfalls like bonuses, raises, or other unexpected income.
• ·         Find a second job to add to your earnings.
• ·        Saving for a home may feel exhausting, but commitment to your goals and exploration of loan products that meet your specific financial situation might help you get the keys to your new home sooner than you think.

Post authored by Lora Bray.

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