Many aspiring homeowners find the task of coming up with a down payment to be quite daunting. However, according to a recent survey by Clever.com, 77% of future homebuyers have already started putting money aside for this purpose. The report further reveals that 57% of potential buyers plan to put less than 20% down when purchasing a home. While there is a common misconception that a 20% down payment is required to buy a house, experts like Danielle Hale, chief economist at Realtor.com, argue otherwise.
In the first quarter of the year, the average down payment was 13.6%, up from 10.7% in the same period of the previous year. Additionally, based on data from the National Association of Realtors survey, the typical down payment for first-time homebuyers was 8% in 2023, compared to 19% for repeat buyers. Despite recent increases in down payment amounts, the average is still well below the perceived gold standard of 20%.
While putting down more money can lead to lower monthly mortgage payments, building up a larger down payment can be a significant challenge for many households. With rising home prices and issues of affordability in the current housing market, having enough savings for a down payment remains a major hurdle for most potential buyers. A study conducted by SurveyMonkey found that approximately 40% of Americans without a home cite a lack of savings for a down payment as a reason for not owning a home.
Despite the common belief that a 20% down payment is required, experts suggest that the national average for down payments on homes falls more in the range of 10% to 15%. Various loan programs provide options for homebuyers to purchase homes with lower down payments. For instance, the Department of Veterans Affairs offers VA loan programs with 0% down payment options, while USDA loans are designed to assist buyers in rural areas with the same benefit. Federal Housing Administration loans, with down payments as low as 3.5%, aim to support first-time buyers, low- and moderate-income buyers, and minority groups.
When determining how much of a down payment to afford, buyers must carefully weigh their options. While a lower down payment can help address affordability challenges, it may come with added costs. Borrowing more from a lender with a smaller down payment can increase the monthly cost of the mortgage and might result in not qualifying for the best interest rates. Additionally, borrowers who put down less than 20% of a home’s value may incur the cost of private mortgage insurance (PMI), which can range from 0.5% to 1.5% of the loan amount annually.
Ultimately, the decision on how much to put down as a down payment should be based on individual financial circumstances and goals. While a higher down payment can lead to lower monthly payments and reduced interest costs, there are options available for buyers with limited savings. By exploring different loan programs and understanding the implications of various down payment amounts, aspiring homeowners can make informed decisions that align with their long-term financial objectives.