“Does the American Dream no longer include homeownership?”
That was the headline of a July CNN Money post about a Pew Research study suggesting that home ownership “has become more elusive” since the financial crisis of 2008. Pew’s study found more households are headed by renters today than at any time since 1965. In kind, home ownership rates are low by historical standards, coming in at around 63%.
While the American Dream has no standard definition, on top of a white picket fence, a dog, and 2.8 kids, that definition most often includes owning a home. Yet, market conditions have led numerous commentators to the general conclusion that home ownership is no longer a requirement for our fellow citizens to enjoy the American Dream.
Supporting this unfortunate conclusion is a plethora of data showing that non-home owners often believe that home ownership is unaffordable. For example, a July Los Angeles Times article lamented “the challenge of coming up with a 20% mortgage down payment.” In June, even the money savvy CNBC.com noted, “Coming up with the cash to make a 20 percent down payment is becoming increasingly impractical,” all but implying that 20% cash down is required to buy a home.
Fortunately, both notions are simply false.
Home ownership is arguably the best financial move a member can make. A house is typically the most valuable single asset any American will own. Think about this: if you buy a $100,000 house and pay it off around the time you retire, you will have an asset you can sell in exchange for a $100,000 windfall of cash. Put another way, when you make your monthly mortgage payment, you are effectively paying yourself by building wealth as the balance of the loan declines.
This brings us to the down payment myth: Members, you do not need to put 20% cash down in order to buy a home. Most Americans, in fact, do not put down 20%. There are numerous loan programs available for members in a variety of circumstances.
A standard conventional mortgage will require the borrower to put down 5%, unless the borrower is considered a first-time homebuyer, in which case the down payment can be a mere 3%. Then there is an FHA mortgage, which requires a 3.5% down payment. If you are a qualifying veteran, VA mortgages have no down payment requirement; and if you are buying a home located in a qualifying rural area and meet a few other requirements, USDA offers a no money down rural development mortgage. Lastly, Day Air offers a no money down option known as AdvantEDGE Equity Builder.
In short, the American Dream should most definitely still include homeownership. Moreover, be assured that you can buy a home without putting 20% cash down. Rather than waiting to save a large down payment, act now and apply for a mortgage!