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By G. Steven Bray
Recent studies have shown that 30% to 40% of prospective homebuyers think they need a 20% down payment to buy a home. The prevalence of this myth makes the results of a recent Freddie Mac study even more interesting.
Freddie’s researchers looked at lender-reported data to the Consumer Financial Protection Bureau on homebuyers’ sources for down payment funds. The data covers a period from 2013 to 2016.
The results show homebuyers still overwhelming rely on their own money with 70% reportedly using savings, retirement funds, or inheritance money for their down payment. However, this is 9 points lower than in 2013.
Repeat buyers were more common in 2016 with 31% reporting they used proceeds from the sale of another property. This is 8 points higher than in 2013.
The share who used money from family or friends remained constant at 25%, but the share using grants or loans from non-profit or government agencies doubled to 10%. (Note that some homebuyers used multiple sources of funds, so the total percentage doesn’t add up to 100.)
One interesting result of the study was the percentage of homebuyers who used a co-borrower to purchase a home. Typically, a buyer uses a co-borrower to afford a more expensive home than the buyer could afford alone. The share for first-time homebuyers with co-borrowers rose from just over 1% before the Great Recession to over 4% in 2015 and 3.2% last year.