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Consumers are paying more to buy a home — but the typical down payment is still much smaller than you might expect.
The average down payment was 13.6% in the first quarter of 2024, according a new report from Realtor.com. The median down payment amount was $26,000.
Both figures are up year-over-year but down from peaks in the third quarter of 2023, the report said. At that point, buyers put down an average of 14.7%, or a median of $30,400.
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Even at recently increased levels, the average down payment is still well below 20%, a share that people usually think of as the gold standard when buying a home.
But 20% isn’t always necessary, experts say.
There are many reasons people are drawn to the idea of putting 20 percent down, such as trying to avoid mortgage insurance or lower monthly payments, said Mark Hamrick, senior financial analyst at Bankrate.com.
“But by no means is that essentially the law of the land,” Hamrick said.
20% reduction is “definitely not required”
One way to lower your monthly mortgage payment is to put more money down and borrow less. But for many households, trying to get a higher down payment can be challenging, said Danielle Hale, chief economist at Realtor.com.
“It really shows the conundrum that the housing market is in where there’s not a lot of affordability,” he said.
Having enough savings for a down payment is a big hurdle for most buyers. Nearly 40% of Americans who do not own a home indicate a lack of savings for a down payment as a reason, according to the 2023 CNBC Your Money Survey conducted by SurveyMonkey. More than 4,300 US adults were surveyed in late August for the report.
Rising house prices make this 20% target particularly daunting. But the reality is that 20% is not needed, experts say.
“Not only is it possible to buy a home with less than 20% down, but this data shows that the majority of buyers actually do,” said Hale. “Certainly not required.”
Nationally, the average down payment on a home is closer to 10 percent or 15 percent, Hale said. In some states, the average is well below 20%, while some are even below 10%, he added.
A number of loans and programs are available to help interested buyers purchase homes through lower down payments.
For example, the Department of Veterans Affairs offers VA loan programs that allow those who qualify to pay as little as 0%. Loans from the U.S. Department of Agriculture, referred to as USDA loans, are aimed at helping buyers purchase homes in more rural areas and also offer 0% down payment options.
Federal Housing Administration Loans, which can require as little as 3.5% down for qualifying borrowers, are available to first-time buyers, low- and moderate-income buyers, and minority buyers. These are “designed to help close the homeownership gaps among these target populations,” Hale said.
Even with a conventional loan, the down payment required from buyers can be between 3% and 5%, depending on their credit score and other factors.
“There are options,” Hale said.
A small down payment can be a “mixed bag”
When deciding how much of a down payment you can afford, tread carefully: Costs associated with smaller down payments may add up. While a lower down payment is one way to “attack affordability challenges,” it can be a “mixed bag,” Hamrick said.
With a lower down payment, you’ll need to borrow more from your lender, which increases your monthly mortgage costs, Hale said. A smaller down payment may also mean you don’t qualify a lender’s best available rate.
When you borrow more than 80% of a home’s value, you may also face the added cost of private mortgage insurance, or PMI.
PMI, in general, can cost anywhere from 0.5% to 1.5% of the loan amount per year, depending on factors such as your credit score and down payment amount, according The mortgage reports.
For example, on a $300,000 loan, mortgage insurance premiums could cost about $1,500 to $4,500 a year, or $125 to $375 a month, according to the website.
Typically, your lender will automatically cancel your mortgage insurance once you reach 22% equity. You can ask for it to be deducted after you reach 20% equity.
In some cases, buyers may choose to do what’s called a “piggyback mortgage” or take out a second mortgage to meet the 20 percent limit and not have to pay for mortgage insurance, Hale said.
But that second loan tends to have a higher mortgage rate, he said.
Correction: An earlier version of this article misstated the name of the Federal Housing Administration.