The biggest hurdle first-time homebuyers face, especially in markets like the D.C. area, is coming up with the down payment. But young buyers may think they face a much bigger hurdle than what it is in reality.
A persistent misconception continues to be that you need to save up for a 20% down payment. The median price of a home in the D.C. metro is now $520,000, so having more than $100,000 saved just for the down payment is out of reach for most young buyers.
A 20% down payment may be considered the gold standard, but the National Association of Realtors says it is not at all typical.
鈥淭he typical down payment is 6% to 7%. An FHA loan is just 3.5%. So you can take advantage of these low down payment options,鈥� said Jessica Lautz, vice president of demographics and behavioral insights at the National Association of Realtors.
The average down payment among millennial homebuyers in the D.C. metro is about $59,000, according to LendingTree.
A lower down payment does mean less, or perhaps, no equity in the home early on, but it can make sense, especially in pricey markets.
鈥淵ou don鈥檛 have to save for a down payment for as long a period of time. In the D.C. area, it is very expensive to enter homeownership today,鈥� Lautz said.
First-time buyers sometimes overlook up front costs of buying beyond the down payment.
鈥淓specially if you鈥檙e going in and it鈥檚 an older property. It may need some repairs. Also, you鈥檙e going to get excited and you鈥檙e going to want to decorate and you鈥檙e going to want to buy lots of things, and that all adds up. So you are still going to want to have lots of cash saved.鈥� Lautz said.
Furniture alone can be a large expense for new homeowners, especially those moving from a small rental to a two- or three-bedroom home. Or for first time buyers who have next to nothing to get started. NAR says it is seeing an elevated share of young adults who are moving directly from living under their parents鈥� roof to homeownership.
Many young, first-time buyers aren鈥檛 going it alone. NAR reports more than 25% of first time buyers right now get help with their down payment from family or friends.
