Down Payment Help Is More Common Among Younger Generations

In a market full of challenges for first-time and repeat homebuyers alike, nearly 2 in 5 homeowners (39%) have received down payment assistance, according to a new report from LendingTree.

LendingTree’s latest survey of nearly 2,000 U.S. consumers looked at opinions and choices surrounding mortgages and down payments. The report found that saving for a down payment can take years—but receiving help from family can speed up that process. In addition, there are many generational differences when it comes to mortgage payoffs, knowledge of the process, use of assistance programs, and more.

Key highlights:

Family help is most common among younger Americans: 78% of Gen Z homeowners report some financial support for a down payment, mostly from their parents. In addition, 54% of millennials have received down payment help, followed by 33% of Gen Xers.
The 20% down payment requirement is a common misconception among Americans. Almost a third (31%) of Americans think putting down 20% for a down payment is obligatory.
However, 59% of current homeowners who have or have had a mortgage say their down payments were less than 20% of the home’s purchase price, and just 29% put down 20% or more.
Older mortgage holders are more likely to pony up for their down payment, with 40% of these baby boomers putting down 20% or more.
Some consumers, primarily older generations, enjoy the mortgage-free lifestyle. One in 10 Americans never took out a mortgage, while 15% had a mortgage but have since paid it off.
Baby boomers are the most likely to have paid off their mortgages, at 29%.
Meanwhile, the likelihood of never having a mortgage is relatively similar across generations.
Most homeowners say they have a solid understanding of the mortgage process, but there’s still uncertainty. 43% of homeowners say they know a lot about the process of getting a mortgage, while another 12% claim to be experts.
On the other hand, 11% admit they don’t know anything about getting a mortgage, despite being homeowners.
When it comes to mortgage programs, conventional loans are the most widely used, with 60% of past or present mortgage holders saying they most recently used a conventional loan.
Only 12% used a Federal Housing Administration (FHA) loan, while 6% each used jumbo loans and Department of Veterans Affairs (VA) loans.

Major takeaway:
According to LendingTree senior economist Jacob Channel, receiving financial support should be seen as common, given the current market.

“In today’s housing market where—even if you can get approved for a loan—buying can still be prohibitively expensive, the more help you have with things like a down payment, the easier buying can be,” he said. “Ultimately, even though that figure is high (probably higher than many people would expect), it speaks to how expensive and tough to navigate today’s housing market can be.”

Though aiming for a 20% down payment is often recommended, Channel added that this isn’t always necessary.

“Would-be buyers who think that they need 20% for a down payment could make the mortgage process harder and more time-consuming than it needs to be, especially if they’re breaking their backs to get to the 20% number,” he said. “In that same vein, those who burn through all their savings just to make a 20% down payment could leave themselves with too little extra cash for homebuying fees like closing costs or emergencies.”

According to Channel, paying off a mortgage dramatically decreases housing costs—although there are some (temporary) drawbacks to doing so.

“For the most part, the largest part of a homeowner’s housing budget is going to be allocated toward their mortgage. If you pay off a mortgage, you could potentially free up thousands of dollars each month that you can put toward other purchases. In the long term, paying off your mortgage can also help you increase your credit score, as it’ll mean you have less debt,” he explained. “In the short term, paying off your mortgage could cause your credit score to drop, though the decline should only be temporary. If you pay off your mortgage ahead of schedule, you may need to deal with some fees or penalties levied by your lender.”

Channel concluded by explaining that taking out a mortgage without the necessary knowledge can be harmful.

“If you don’t understand how the mortgage process works or what the terms of your specific loan are, you could get stuck with a mortgage that doesn’t fit your needs,” he said. “Similarly, you could end up with a higher rate or more fees than you could’ve gotten had you been more proactive and better understood your options. Don’t rush and be sure to ask any and all questions you have throughout the mortgage process. The more you know, the better choices you’ll be able to make.”

For the full report, click here.