Financing And Lender Decisions
Affording the down payment is a significant barrier to homeownership, particularly for renters. Sixty-six percent of those surveyed in the Zillow Housing Aspirations Report name it as their top concern, ahead of qualifying for a mortgage and job security.
Most buyers (54%) say they are somewhat concerned or very concerned about qualifying for a mortgage, but their fears may be related to the down payment and don not appear to be born out during the buying process.
Repeat buyers are more likely to bring 20% to the table than first-time buyers (58% versus 40% put 20% of more down), typically leveraging equity from the sale of their previous home.
Nearly half of buyers who obtain a mortgage use more than one source for their down payment, with 18% relying on two sources and 27% tapping three or more sources.
Paying Cash Versus Getting A Mortgage
While pre-approval is the norm for most (80% of buyers obtain it), older generations are less likely to get pre-approved. Forty-four percent of Silent Gen buyers apply for and receive pre-approval, compared with 70% of Boomers, 80% of Gen X, 88% of Millennials and 82% of Gen Z buyers. This trend may be due to the fact that members of the Silent Generation also are more likely to be cash buyers. Most buyers (77%) finance their new home with a mortgage. Younger buyers are more likely to finance their purchase: 84% of Millennials and 81% of Ben X obtain mortgages versus 67% of Boomers and 42% of Silent Gen buyers.
Nearly a quarter (23%) of all buyers pay cash. Rural buyers, who trend older, are more likely to pay cash for their homes, 33% versus 20% of urban buyers and 21% of suburban buyers.
The Myth Of The 20% Down Payment
Despite common beliefs, a 20% down payment is not a requirement for homeownership. Just over half of buyers (52%) put less than 20% down on their purchase. Only 23% of buyers put down exactly 20%, and another 20% put more than 20% down.
As you might expect, younger buyers put down less than older buyers 60% of Millennials put down less than 20% for their down payment, compared with 48% of Gen X, 43% of Boomers and 38% of Silent Gen buyers.
Older Buyers Tend To Put More On The Table
Putting down 20% allows buyers to avoid paying the sometimes costly mortgage insurance that lenders require. The number of buyers who put down 20% or more increases as buyers age, with the Silent Generation bringing the most money to the table: 35% of Millennials, 48% of Gen X, 51% of Boomers and 62% of Silent Gen buyers put down 20% or more on their home purchase.
Buyers who live with young children at home typically put down less than 20% (55% versus 49% for buyers without kids at home). These buyers may be tapped out by child rearing costs and education expenses, and find it more difficult to save up.
Most Save Up, But Others Rely On The Bank Of Mom And Dad
Overall,70% of buyers who obtain a mortgage use savings to fund at least some of their down payment, while 39%use the proceeds from the sale of their previous home.
Some buyers have help from relatives and/or friends in the form of gifts (30%) or loans (26%). In addition, some buyers tap into other forms of equity for their down payment: 27% use retirement funds, 26% sell stocks or other investments, and 12% rely on other sources.
Considering all sources of the down payment, savings, on average, account for the largest share (43%), while proceeds from the sale of their previous home account on average for 19%. The share from gifts or loans on average is 15%, and retirement funds, stocks and other sources on average account for 8%, 7% and 8% respectively.
Younger buyers who obtain mortgages get a greater share of their down payment from family and friends than do older buyers with mortgages. On average, the share of their down payment that came from gifts or loans from family or friends is 20% for Millennials, 15% for Gen X, 8% for Boomers, and 3% for Silent Generation buyers.
Older buyers who take out a mortgage use equity from the sale of their previous home to compile their down payment. On average, 57% of the down payment for Silent Generation buyers and 25% of the down payment for Boomers comes from equity in their previous home. For Gen X and Millennials, the share on average, is 22% and 13%, respectively.
While some buyers use a single source of funding for their down payment, younger generations are more likely to tap multiple sources for their down payment compared with older generations: 57% of Millennials, 39% of Gen X, 28% of Boomers and 32% of Silent Gen buyers use two or more sources.
Savings account for a large share (43%) of the average buyer's down payment. But for buyers who rely on multiple sources, savings make up only 29% of the total amount they put down.
Conversely, gifts or loans from family or friends make up 25% of the down payment for the average buyer who taps multiple sources compared with only 15% for the average buyer overall who obtains a mortgage.
Still, for the average buyer who relies on more than one source for their down payment, savings account for the largest share: 29% of the down payment comes from savings; 20% from the proceeds from a previous home; 14% from a gift from family or friends; 12% from a loan from family or friends; 11% from a retirement fund; 11% from selling stocks or other investments; and 3% from other sources.
How Buyers Find Financing
Most buyers use multiple resources, an average of 3.2, when searching for financing. Referrals are key at this step in the process, especially for buyers who work with an agent. These buyers are more likely to use referrals to find their lender than those who do not work with an agent (67% versus 44%, respectively).
Exactly half of buyers consult with their current financial institution, while 34% seek out a different financial institution.
Agents Are The Main source For Financing Referrals
Buyers who rely on referrals turn first to their real estate agent (50%); then their family, friends, neighbors, and colleagues (33%); direct mail (20%); newspaper ads (18%); and other resources (14%).
As expected, younger generations are more likely to use online resources: 76% of Gen Z buyers and 65% of Millennials use them, compared with 53% of Gen X, 40% of Boomers and 31% of Silent Gen buyers.
First-time buyers, who draw heavily from the younger generations, are more likely to use online resources than repeat buyers, 58% versus 52%.
More than a third of buyers (35%) find their lender through referrals, either on the recommendation of real estate agent or broker (24%), or family and friends (11%). Seventeen percent of buyers pick a lender they have previous experience with.
One in 5 buyers finds their lender through online sources, such as financial websites and aps, and real estate websites and apps (6% each). Another 5% use search engines, and only 3% find lenders through social media websites and apps.
Direct mail and newspaper ads are used by only 2% of buyers to find their mortgage provider.
One And Go: Most Buyers Don't Shop For A Lender
Most buyers (54%) who obtain a mortgage do so after contacting only one lender, even though they are making what is likely to be the biggest investment of their lifetime.
Younger buyers, who are more likely to be new to the process, conduct more extensive research than older generations. Sixty-four percent of Gen Z buyers and 57% of Millennials contact more than one lender, compared with 39% of Gen X, 35% of Boomers and 18% of Silent Gen buyers.
With financing secured and the final papers signed, buyers finally settle in as homeowners. Most (62%) will spend a decade or more in their new home before finding themselves in the market once again as sellers.
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