Millennials really don't get how down payments work

Elina Tarkazikis

More than one-third of millennials said saving for a down payment is the biggest hurdle to buying a home, but few seem to realize they don't need to put 20% down to get a mortgage, a recent study found.

Coming up with a down payment was the biggest barrier for 36.2% of respondents, compared to other obstacles, including 17.9% who cited the competitive housing market and 13.2% who said qualifying for a mortgage are their biggest concerns. The study, commissioned by real estate marketing company Clever Real Estate, surveyed adults age 18-34 who plan to buy a home in the next year.

But when asked later about the size of their expected down payment, a scant one-in-five said they plan on putting down less than 20%, while 63% said they plan on putting down anywhere between 20% and 90%.

The results highlight potential confusion and uncertainty among consumers, and first-time homebuyers in particular, about low down payment mortgage offerings from the Federal Housing Administration, which generally requires a 3.5% down payment, as well as Fannie Mae and Freddie Mac, which only require a 3% down payment.

About 23% of respondents said they're considering a government-insured mortgage from the FHA or Department of Veterans Affairs, while 18% said they're interested in conventional financing and only 7% said they're looking at conforming loan options. Respondents were allowed to choose multiple options for this question and it's unclear whether the more esoteric industry terms like "conventional" and "conforming" were fully explained in the survey.

In the same question, nearly half of respondents said they're considering a fixed-rate loan, while 23% said they are considering an adjustable-rate mortgage. In addition, 11% said they plan to pay cash and 11% said they're unsure about how they'll finance their home purchase.

Nearly one-third of respondents said they're looking for homes priced between $100,000 and $199,999, the most popular price range in the survey, followed by 26% who said they're in the market for a home priced between $200,000 and $299,999.

As far as property type, 72.8% of young adults are seeking out a single-family home, compared to 12.1% looking for a multifamily property and 9.4% searching for a condominium or townhouse.

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