When you bought your first home did you ever worry about losing your down payment? Well, the new home buyers want down payment protection in California, according to a new study by Harris Poll. They are reluctant to buy a home for fear that their down payment could be lost if they sell their house in a few years.
Given that the average employee tenure in the U.S. is 4.6 years overall, and 3 years for millennials, it’s understandable that the modern homebuyer may be nervous to commit to living in one location for an extended period of time.
“Saving for a down payment and feeling confident that their investment will be protected remains a significant barrier for many would-be homebuyers,” says Amy Swinderman, staff writer at INMAN.
“According to the survey, 81 percent of renters and 67 percent of homeowners believe that down payment protection would give people more confidence in buying a home. About 63 percent of renters said they would be more likely to buy a home sooner if they could have the option to buy down payment protection in California. More than half of millennial homeowners said they would be more likely to buy a new home if they can have the option to buy down payment protection.”
ValueInsured is offering the +Plus program and it will be available to buyers of existing or new single-family homes in all 50 states after January 2016. Buyers who purchase the policy will pay a one-time fee at closing.
Rates will vary depending on the buyer’s state, but on average, buyers will pay about $1,000 for the policy. In some cases, lenders may agree to pay for the coverage and charge the buyer a higher interest rate, which would increase monthly or other periodic loan payments. Other options include a seller paying for it, or a buyer’s agent paying for it.
“Coverage,” says Swinderman, “only applies if the sale price of the home is lower than the purchase price, and if the Federal Housing Finance Administration (FHFA) Home Price Index (HPI) for the homeowner’s state at the time of sale is lower than it was on the date the house was purchased. The payout is calculated as the lesser of the homeowner’s down payment; the actual equity lost; or the purchase price of the home, times the reduction in the homeowner’s state HPI. Some eligibility requirements apply.”
For example, if you have down payment protection in California, and you bought a house for $100,000 and two years later sell the house for $80,000, you would be insured for the loss of your down payment. If the HPI only declined 10%, you would get $10,000.
Here in California purchasing a $400,000 house with a down payment of $80,000 would cost a one-time premium of $5,160.00 from Amalgamated Bank, according to ValueInsured. While that rate is almost double for other states, it would relieve the stress of having the whole downpayment in California on the line.
If down payment protection will help move renters into a new or existing house, then I say bravo.
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