Educating consumers is crucial to growing purchase market business, especially since one of the biggest misconceptions homebuyers have is that they will need 20% for a down payment. The CEO of one of the largest big banks is trying to establish a new benchmark in what it takes to get a mortgage.
Bank of America CEO Brian Moynihan recently told CNBC in an interview, “At the end of the day, as people get to different points in their life and different points of what you’re doing in your life, it requires you think about housing differently, as a place for you and your friends, as a place for you and maybe your significant other and ultimately a place for you and your family. That drives change.”
“If you require a 20% down payment, it takes just a little bit more time to accumulate 3% or none,” said Moynihan.
Moynihan explained in the interview, seen below, that Bank of America’s goal is to change the historical thinking about a 20% down payment to 10%. He added that the change wouldn't introduce that much risk, but would actually help a lot of mortgages get done.
What Moynihan didn't explain is why the 20% down is seen as the industry stardard, due to most lenders offering that product without the additional cost of private mortgage insurance premiums. Moynihan comments indicate a 10% down mortgage may be as effective as a 20%, if also offered without the PMI requirement.
Down-payment program options have come a long way in the last few years, boasting anything from 3% down to 1% down to end the mindset that borrowers must put 20% down. Bank of America released its own affordable mortgage program last year that offers consumers the option of putting as little as 3% down with no mortgage insurance.
But despite the growth of low down options, consumers still believe a lot of misconceptions about how much money they need to have saved, according to a recent Genworth Mortgage Insurance survey of lenders.
“While first-time homebuyers continue to drive the purchase market, we believe many are being kept on the sidelines due to the misconception that a 20% down payment is required to secure a mortgage,” said Rohit Gupta, CEO of Genworth Mortgage Insurance, about the survey results.
“There are various low down payment options available today that allow prospective homebuyers to reach their dreams of homeownership sooner. It is crucial that, as an industry, we proactively educate eligible borrowers about solutions that will enable them to buy a home when they’re ready,” Gupta said.