Real Estate Market

Half of consumers can't come up with down payment

(6/10/2011) ERATE Exclusive - If housing will help lead the economy out of the downturn, it's going to need a lot more help than it is getting.

Lenders more and more often expect a hefty 20 percent down payment upfront and half of consumers say there's no way they can come up with that kind of cash, according to a May survey by the National Foundation for Credit Counseling (NFCC).

Along with 50 percent of the more than 1,000 consumers who said they'd "never be able to save enough money for a down payment," 17 percent would have to borrow the down payment no matter how much was required, 21 percent would need a loan that allowed a lower down payment and only 12 percent said they'd have no trouble coming up with a 20 percent down payment.

"The 2011 results could be even worse than they appear at first glance," said Gail Cunningham, spokesperson for the NFCC.

"Since prices for homes are at historic lows, the necessary down-payment represents a lower dollar amount than would typically be necessary. Nonetheless, consumers still do not feel capable of meeting the requirements," said Cunningham.

This year's survey results were little changed from last year's when home prices were a bit more expensive.

NFCC said the results indicate many consumers are resigned to renting for the time being, even though some markets make it more affordable to buy a home as rents are rising due to the demand.

Renting also won't stimulate the economy as much as owner-occupied housing. Renters typically don't spend as much on home improvements, lawn equipment, appliances, or other areas which would lead to the kind of job growth necessary for economic expansion.

"Now is the time for consumers to examine their long-term goals as they relate to housing, and take the steps necessary to meet them," continued Cunningham.

"Renting may be the right answer for some people, but just because homeownership isn't on the horizon at the moment doesn't mean it never can be," she added.

NFCC members can help you define your housing and other financial goals and construct a plan to meet them.

Meanwhile consider these suggestions to extract down payment savings from your income.

• Budget. Create a budget to determine where every penny goes. If you don't know where your money goes, you won't know where you can cut back.

• Spend less. Some debts including rent, car payments and insurance premiums are fixed. Cut back wherever possible on groceries, clothing, gifts, gasoline, utilities, eating out, partying, travel and other areas.

• Save routinely. Have savings deducted from your income deposited in a savings or investment account with the highest rate of interest you can find. If it's gone before you get it, you'll be less likely to spend it.

• Adjust your W-4. Instead of waiting to get your loan to the IRS back as a refund, save the extra income you'll get after you adjust your W-4 to reflect your true tax liability.

• Liquidate assets. Unload stamp, coin, baseball card, comic book collections and what is collecting dust in your safety deposit box. Likewise eBay all that stuff you never use.

• Cut plastic. Save credit for emergencies. Reducing credit debt gives you money to save and it can boost your credit score.

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