How Much Down Payment Should You Put Down on a House?
According to the National Association of Realtors® (NAR) 2022 Profile of Home Buyers and Sellers, the typical down payment for first-time buyers is a mere 6%, and among all home buyers in the United States in 2022, first time home buyers accounted for approximately 26 percent of the total.
This indicates a notable shift: not only are low down payment options widely utilized, but they’re particularly useful to people today, debunking the traditional expectation of a 20% down payment. While the ONE+ program isn’t exclusive to first-timers, it’s designed to aid first time home buyers and those who have had trouble saving for a down payment.
Pros and Cons of New 1% Down Payment Loan Options
Homeownership contributes to building stronger, multi-generational wealth through equity building over time. From a long-term financial perspective, the value of purchasing property far outstrips renting through principle pay down of the loan and property appreciation. But with rent so high, it can be hard to save enough for the downpayment to get one’s foot in the door.
The ONE+ program facilitates this step into property investment with a lower barrier to entry, aligning with the goal of transitioning from rent to building personal wealth through real estate. Another less talked about but equally valuable aspect of owning property is as a hedge against inflation. As food, cars, and rent increase over time and your house price goes up, the dollar amount you borrowed and the payment doesn’t have to, making it more cost effective over time.
However, it’s crucial for potential borrowers to be sure they are comfortable with the immediate and shorter-term additional costs of home ownership.
Pros:
- Minimal Down Payment: ONE+ requires only 1% down, making homeownership accessible sooner without the need for larger savings required for other low down conventional loans.
- Immediate Equity: The lender provides a 2% grant, so the borrowers begin with 3% equity in the home rather than 1%, which is a nice benefit from the start.
- No PMI: The program waives private mortgage insurance premiums, so it’s a little more budget friendly than other low downpayment options.
- Quick Qualification: Borrowers can quickly learn how much they can qualify for and close quickly, which is not the case with many Down Payment Assistance programs.
6.99% Note Rate / APR 7.513%
(As of 11/9/2023)
“Since 1943, property has gone down 7 times and up 73 times.”
Cons:
- Income Restrictions: Eligibility is limited to those earning less than 80% of the area median income, which might exclude many potential borrowers in higher-cost living areas.
- Purchase Price Restrictions: Purchase price is restricted to $350,000 or less.
- Less Equity: With any low down payment program, the buyer needs to have a long-range vision in mind to accommodate potential fluctuations in the market and give time for equity to build before selling. It’s important you feel comfortable with the payment as the market could go down as well as up, and you don’t want to be in a financial position that forces you to sell. It typically costs between 3-6% of the sales price to sell a home.
If you have questions about ONE+ or would like to discuss other Low-Down Payment options or Down Payment Assistance programs with less restriction, including no income restrictions and a higher purchase price, contact us for more informaiton.
