Facing the Down Payment Hurdle
What’s the biggest challenge that most face when trying to buy a home? For many, it’s coming up with enough money for a down payment.
That’s because buyers usually — though not always — have to come up with a down payment of at least 5 percent of a home’s purchase price. In Chicago, that can mean a large sum of money. Consider that a 5 percent down payment on a home costing $250,000 — not a high price for a Chicago residence — will come out to $12,500. A heftier down payment of 10 percent would equal $25,000.
That’s a lot of money for buyers to come up with.
REALTOR® Magazine recently spotlighted the down payment challenge in a feature story. According to the story, it can take buyers several years of financial planning to save up enough money for a down payment.
The story cites a study by financial website SmartAsset.com listing those cities in which it takes the longest time to save up for a down payment. SmartAsset calculated how long it would take for a household to save enough money for a 20 percent down payment if they managed to save 20 percent of their income each year.
Chicago ranked sixth on SmartAsset’s list. According to the site, it will take Chicago residents an average of 4.59 years to save up enough for a 20 percent down payment.
Of course, this is list isn’t exactly scientific. The biggest problem is that buyers don’t have to come up with a 20 percent down payment. Buyers can find programs that require down payments of as little as 3 percent of a home’s purchase price.
Of course, the larger a down payment you can provide, the better. That way, you’ll have a smaller mortgage payment. And lenders often reward buyers with lower interest rates if they provide a larger down payment.
If you’re struggling to come up with the funds for your down payment, talk to your REALTOR®. REALTORS® can help you find mortgage programs that require lower down payments. They can also connect you to mortgage loan officers who can provide you with a plan for coming up with those down payment dollars. You can even rely on a gift from a family member to cover your down payment, so long as it really is a gift and not a loan.
The truth? Coming up with a down payment will always be challenging for many buyers. But that doesn’t mean doing so is an impossibility.