Down Payment Myths – I’ll Never Be Able to Save 20% Down

This week, the Minnesota Homeownership Center is covering the third of three deeply-rooted myths that can keep you from considering homeownership for yourself – the myth of the 20 percent down payment requirement.

With the median home price in the Twin Cities having hit a record high of $370,000 last year, a 20 percent down payment on the purchase of that home would be $74,000. It’s safe to say most first-time homebuyers would find coming up with that amount of cash a challenge, if not an insurmountable hurdle. And if you believe this amount is required in order to qualify for a mortgage, you might write owning your own home off as impossible and never give it a second look.

The truth here is that 20 percent down is not required. In fact, many are able to purchase their first home with as little as three percent down, thanks to special programs such as down payment assistance.

Down payment assistance can take many forms and has widely varying demographic and locational eligibility requirements. Most assistance is given in the form of an additional loan, with the proceeds either forgiven after a pre-determined amount of time or paid back upon the sale of the house. Navigating what programs are out there and available and how they differ from one another is extremely difficult, which is why enlisting the help of a professional Homeownership Advisor is so important here. Homeownership Advisors work in the down payment assistance arena every day, and are thus able to navigate through multiple options and present the best available scenarios for their clients. They also know which lenders handle down payment assistance transactions best, which keeps your purchase offer competitive with the others out there.

In 2021, the Minnesota Homeownership Center partnered with Minnesota Realtors® to commission a study on the potential impacts of various amounts of down payment assistance on household ability to purchase a home. The findings were dramatic. After removing renter households already able to afford a home purchase, access to down payment assistance could enable more than 200,000 additional Minnesota households to purchase a home. More than 100,000 of these households could do so with less than $10,500 in assistance. Further, with regard to the racial homeownership gap, transitioning just 11,600 Black Minnesota renter households to homeownership would increase our state’s Black homeownership rate by ten percent – a significant gap reduction.

On the heels of this study, the Minnesota Homeownership Center doubled down on down payment assistance as a tool to make homeownership more equitably accessible for all.

We partnered with Twin Cities Habitat for Humanity on a legislative proposal to establish a First-Generation Homebuyers Down Payment Assistance Fund. If enacted, this initiative would help to move 5,000 renter households into homeownership and shift our racial homeownership gap from 5th worst in the nation to 11th worst (which is still nothing to be proud of). The bill’s prospects in the 2023 state legislative session are currently good.

We unveiled a slate of Down Payment Assistance Best Practices for Program Administration in consultation with a working advisory group of city and county officials, lenders, Realtors® and housing nonprofits. These best practices would increase consumer access and improve outcomes by facilitating standardization and transparency. They also would help ensure such funding is accessible by increasing investment, improving targeting and enabling more successful purchase transactions. This work is ongoing.

And we submitted a successful joint proposal to Fannie Mae®’s Sustainable Communities Innovation Challenge, again with Twin Cities Habitat, to scale up a regional Special Purpose Credit Program (SPCP) for Black homebuyers. This program is one of the first in the country to utilize SPCPs to focus on Foundational Black Households, or those who trace their lineage back to slavery in the U.S.

In the end, the difference between paying rent and paying a mortgage can be negligible in terms of dollars spent each month. The hurdles involved in the purchase process are what keep many from realizing their dream and achieving housing stability and wealth creation. The Minnesota Homeownership Center is here to remind you that these hurdles can be overcome with nonbiased, one-on-one advisory services that are accessible and available to everyone, free of charge.

Homeownership is possible. We can show you how.

For more information on the Minnesota Homeownership Center and its advisor and education services, go to www.HOCMN.org.