Ease Your Buyers' Down Payment Woes

January 19, 2017

About a quarter of first-time home buyers surveyed by realtor.com® in December said the top delay in buying was a lack of funds for a down payment. However, many first-time buyers don’t necessarily need a 20 percent down payment to move forward on a home purchase.  

In fact, the average down payment is 11 percent, according to realtor.com®’s research of loan record data from Optimal Blue. On an average purchased house in 2016 at $290,000, that equates to about a $32,680 down payment.

Certainly, that can vary on circumstance. For example, jumbo loan borrowers tended to put the highest percentage down at an average of 23 percent. On the other hand, conforming mortgage borrowers put down an average of 18 percent in 2016. FHA, VA, and USDA mortgage borrowers put down much less, an average of 4.8 percent, 2.2 percent, and 0.4 percent, respectively.

Further, “where you live or are thinking of living can also dramatically affect what it takes to get a mortgage,” writes Jonathan Smoke, realtor.com®’s chief economist. “Higher-cost markets don’t just have higher-priced homes; they also have buyers with higher down payments. Lower-cost markets are just the opposite.”

Why the mismatch? Higher-cost markets tend to have pricier homes that are less likely to be covered by low down payment loans, Smoke explains. As such, first-time home buyers may have a tougher time in high-cost areas. Many of these high-cost areas have low homeownership rates among young buyers.

For example, in pricier markets like the District of Columbia, the average purchase price is slightly more than $630,000. The average down payment is nearly $110,000 -- or more than 17 percent, realtor.com® notes. In other high-cost markets like San Francisco County, buyers put down an average of 29.9 percent on their home purchase and in Manhattan buyers put down a whopping 30.2 percent.

On the other hand in lower cost places, buyers could put down much less. For instance, in Mississippi the average purchase price in 2016 was $165,000 and the average down payment was under $9,000 -- nearing about 5 percent. Also, in rural counties in the South and Midwest average down payments tended to be closer to 3 percent, or $5,000 or less, Smoke notes.

Source: “Think You Need to Save 20% for a Down Payment? Think Again,” realtor.com® (Jan. 18, 2017)