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When Mom And Dad Can’t Give You A Down Payment: Fact And Fables On Mortgage Assistance Programs

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Mar. 4 2019, Published 3:30 a.m. ET

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It’s a common misconception that to purchase a home you need to have a 20 percent down payment. Since most of us don’t have, let’s say $40K, for a $200K house, readily accessible, what is the truth about the options available to first-time homebuyers who don’t have family help or a lump sum gift?

The idea of the “American Dream” is evolving with millennials’ perception of success changing. However, homeownership still remains central to the “American Dream” ideal for today’s millennials.

While studies show millennials ages 25-34 have a lower homeownership rate (37 percent) than Gen-Xers (45 percent) and baby boomers (45 percent) when they were the same age, the reason is not quite as simple as lack of desire or lack of financial readiness as many would assume. Like with many other life milestones, millennials are simply taking their time and making sure they are absolutely ready before committing to the responsibility of homeownership.

Below are three misconceptions we tell ourselves that may prevent us from pulling the trigger and getting in the real estate game.

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Fable #1: I can’t afford the 20 percent down payment!

There’s a large misconception amongst millennials that they can’t afford to purchase a home. This, however, can simply be a matter of perception. According to Bank of America, 40 percent of millennials believe a 20 percent down payment is required to purchase a home.

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Fact #1: According to Zillow, the median price of homes sold in the United States is $222,800, so a 20 percent down payment would equate to $44,000. That is an overwhelming number for most and is simply NOT ACCURATE. While a conventional loan may require a higher down payment, organizations, such as the Federal Housing Administration (FHA) and the U.S. Department of Veterans Affairs (VA), offer government loans that have low down payment options. Click here to learn about FHA and VA Mortgage Loans. The Affordable Loan Solution mortgage is another low-down payment mortgage program for homebuyers with a modest income and can offer a down payment as low as three percent and no mortgage insurance.

In addition, there are state and city housing finance agencies dedicated to helping with the upfront costs of purchasing a home. Check out the Bank of America Down Payment Center to see if you qualify for assistance in your state. You may be surprised at how affordable purchasing a home can be if you combine a low-down payment loan and a grant program.

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Fable #2:  I have to commit to one house for 30 years.

The second largest myth millennials believe about homeownership is that a 30-year mortgage means you must commit to living in the home for the entire time.  

Fact #2: Yes, it’s true that you need to repay the money that you borrow, but that doesn’t stop you from moving home. When you sell your home, what they pay goes towards the balance left on your mortgage. Do your homework and connecting with a lending officer who can explain the process and bust the myth.

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Fable #3: Taking on additional debt seems like a stretch…

It is no secret that millennials have their fair share of debt and the idea of adding more seems counterproductive but speaking with the experts may show you that sustainable homeownership is achievable even in your personal situation.   

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Fact #3: For those with other debt, like student loans, you may be wary about adding more to your plate. It is true that for some it may be challenging to qualify for a home loan because you have more debt than your income can support or you’ve delayed saving for a down payment, but you are not alone. Studies show the majority (88 percent) of college graduates who are currently paying off student loans are having trouble saving enough to make a down payment within the next five years. In addition, most lenders want the amount of debt you owe versus the income you make (debt-to-income ratio) to be no more than 36 percent to ensure you can comfortably sustain homeownership. To calculate your debt-to-income ratio, check out this article. Even with debt, it is still possible to become a homeowner. Speak to a lending officer who can help you design a path to homeownership. They have the knowledge to help you get on track. Keep in mind that owning real estate remains one of the most effective ways to build wealth over the long term, so start early and find the right path for you.

The one thing these three fables have in common is they are rooted in misperception and lack of knowledge. If homeownership is on your agenda, begin preparing now and don’t allow fear to stop you from getting into the home of your dreams. Let Bank of America help you achieve your dream of homeownership by using the below tools and resources for first-time homebuyers.

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Bank Of America Resources And Tools:

PROPERTY AND POWER The Millennial Woman's Guide To Home Buying What Every Woman Needs On Her Agenda To Make Smart Decisions Around Ownership And Equity

[Editor’s note: This feature is sponsored by Bank of America, part of Property and Power: Her Agenda’s series to empower and inform first time home buyers.]

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