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Where are home buyers getting money for down payments, what delays savings?

Home buyers say that navigating the mortgage process is intimidating and difficul, so agents should understand how home buyers are reacting with their finances.

home buyers

The 2015 National Association of Realtors Profile of Home Buyers and Sellers has just been released, and we’ve learned that home sellers averaged $40k in equity this year, that the average buyer is a 44 year old married white couple, and the challenges home buyers face.

Now, in a market where 86 percent of buyers finance their home purchase, agents must understand this flow of money to better meet their clients’ needs.

First time versus repeat buyers

It is interesting to note that last year, 88 percent financed their home purchase, so that number has slid a bit. What remains steady is the fact that younger buyers are more likely to finance their home.

First-time buyers who financed their home financed 94 percent of their home compared to repeat buyers at 86 percent.

The report notes that “Unmarried couples that were first-time home buyers financed their homes the most at 98 percent whereas single females that were repeat buyers only financed 75 percent of the time.”

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Where did those down payments come from?

NAR reports that for 60 percent of buyers, the source of their down payment came from their savings. Fully 38 percent of buyers cited using the proceeds from the sale of a primary residence was the next most commonly reported way of financing a home purchase.

“For repeat buyers, this was the most common way to finance a home at 53 percent,” the study states. “This number is up from 47 percent last year and more than double the 25 percent used in 2012, likely due to the increase in property values allowing buyers to use equity from their previous home at higher rates.”

Time it took to come up with a down payment

For all buyers who saved for a downpayment, 46 percent saved in less than six months, which is up from 37 percent last year.

Fully 54 percent of buyers did not need to make any sacrifices, consistent with last year. For those who did, the most common sacrifices reported were cutting spending on luxury goods, entertainment, and clothes shopping.

“Single males had the highest percent of savings used for the down payment at 74 percent.

What delayed savings?

Saving for a down payment was cited as a challenge for home buyers, and of buyers who said saving for this was difficult, 51 percent blamed student loans (up from 46 percent just last year).

But it wasn’t just student loans holding people back, 47 percent cited credit card debt, which is good news, as that slid down from 50 percent last year. Fully 35 percent cited car loans (down from 38 percent) as a challenge.

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“Nearly a quarter of buyers were delayed in purcashing a home by more than five years if they had debt that delayed them,” indicates the study.

The median length of time buyers waited to buy a home while saving for downpayment was four years.

Challenges in the application process

You would think only first timers have trouble with the application process, but no. A full 45 percent of first time buyers said that the mortgage application and approval process was somewhat to much more difficult than expected compared to 37 percent of repeat buyers.

Single female buyers were more likely to report the process was easier than expected for them.

Fixed rate mortgages are still the most common (91 percent of buyers this year); 59 percent of buyers chose a conventional loan to finance their home, down from 61 percent last year.

Twenty-three percent of buyers reported securing FHA loan and 11 percent chose a VA loan. First-time buyers sought FHA loans more commonly than repeat buyers at 34 percent to 16 percent. Repeat buyers largely used conventional loans at 66 percent.

The bottom line about home buyers

Difficult or not, home buyers continue to see purchasing a home as a good financial investment. Fully 80 percent (up from 79) reported they view a home purchase as a good investment.

Agents should understand the anxiousness involved in the process and answer to those objections and needs in advance to better serve consumers.

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Lani is the COO and News Director at The American Genius, has co-authored a book, co-founded BASHH, Austin Digital Jobs, Remote Digital Jobs, and is a seasoned business writer and editorialist with a penchant for the irreverent.


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