New American Funding Blog

Guide to Saving Money for a Down Payment in 2015

By Courtney Lynch   |  January 29, 2015

The upcoming year may be a great time to purchase a home, and saving for a down payment might be easier than you thought.

 

Millennials are forecast to contribute to a promising upcoming year in real estate. According to CNN Money, 2015 will be the year overtaken by first-time homebuyers. The rising cost of rent and changing needs of this generation may push them to apply for mortgages and purchase new homes. 

Reasons behind the appeal of purchasing a home in 2015 
Owning a home is part of the American dream, and the upcoming year has many appealing reasons for individuals to move forward and purchase a little bit of that dream. Motivations for millennials to enter the housing market include: 

  • Lower down ​payment mortgages
  • More affordability
  • More inventory
  • Recovering economic and job growth 
  • Changing needs 


Lower down​ payment financing
Toward the end of 2014, two government-backed home loan mortgage corporations announced new plans that would allow qualified potential borrowers to provide a significantly lower down ​payment on a house. Both Fannie Mae and Freddie Mac now back loans with a down payment as small as 3 percent of the total value of a home. 

Fannie Mae announced the option is available to qualified first-time homebuyers. Qualification requires income documentation and verification. This prevents "low-doc" or "no-doc" lending. 

"Our goal is to help additional qualified borrowers gain access to mortgages," said Andrew Bon Salle, executive vice president for single family underwriting at Fannie Mae. "We are confident that these loans can be good business for lenders, safe and sound for Fannie Mae and an affordable, responsible option for qualified borrowers." 

Freddie Mac offers a program called Home Possible Advantage, which also provides qualified potential homebuyers with the opportunity to only provide a 3 percent down payment on a house. This option does mandate minimum credit requirements, enough money to cover closing costs, credit enhancement or private mortgage insurance and enrollment in a qualified borrower education program. 

These options for lower down payments provide low- to moderate-income applicants and first-time homebuyers with the opportunity to enter and boost the housing market. So hand in hand with this alternative are looser lending standards. 

More affordability
CNN Money reported that with a growing number of homes entering the market, prices will be more affordable to millennials. This prediction may impact homes in areas such as Seattle, the District of Columbia and San Jose, California. 

National Public Radio indicated that many millennials flock to cities and suburbs. This generation tends to enjoy the busier and livelier environments offered by metropolitan regions. Unfortunately, these areas also tend to cost more. If homes become more affordable, particularly in urban areas, purchasing a home may become more appealing. 

More inventory
Zillow predicted an increase in smaller home construction to adjust to the number of potential first-time homebuyers. 

"In recent years, home builders seem to have made a conscious decision to sell fewer, more expensive homes instead of more, cheaper homes," said Dr. Stan Humphries, chief economist at Zillow. "In 2015, that will change, especially as demand moves toward the lower end of the market as millennials begin buying en masse."

Recovering economic and job growth 
The news is especially positive for the U.S. economy. The National Association for Business Economics predicted 3.1 percent growth in gross domestic product next year. In addition, the employment outlook may improve in the upcoming year. The median prediction rate of unemployment in 2015 dropped to 5.6 percent, and an estimated 217,000 new jobs on a monthly basis are estimated next year. 

A stable economy enhances confidence in purchasing a new home. Job security has the potential to increase the likelihood of making a real estate investment. 

Changing needs 
Along with all the positive reasons to buy a home, millennials are also reaching an age where changes are occurring in their lives. Many millennials are marrying and deciding to begin their own families. These changes require larger living spaces. Homes are far more practical for young families. 

Ways to save money for a down payment 
Fox Business provided a number of tips for potential homebuyers interested in saving for a down payment: 

  • Know what type of home you are seeking. Decide on a neighborhood, size and even style of home you are interested in. Conduct research and find out the price range for your dream home.
  • Know how much money you will need and be realistic with your budget. Typically, budget for 28 percent of your monthly income to go toward your mortgage payments.  
  • Decide how much money you should set aside each month to reach your goal. Also, know how long it will take you. This likely will require you to readjust your current budget.
  • Figure out where you can cost cuts. Consider moving to a cheaper place, eating out less, not purchasing coffee on a daily basis and packing lunch for work. 
Decide what type of loan you want to apply for and know the requirements.
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