Typical Down Payment on a Home Has Jumped 15% in Past Yr

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Buyers available in the market for a recent home are digging deeper into their money reserves than ever before.

The standard down payment hit a record high of $67,500 in June, in keeping with a recent Redfin report. That’s up nearly 15% from last 12 months, when the common down payment was $58,788.

Mortgage rates have been hovering near 7% for many of the 12 months, pushing monthly payments higher as home prices remain elevated. Now, homebuyers are counting on larger amounts of money upfront to cut back how much they should borrow and ultimately lower their monthly mortgage payments, Annie Foushee, a Denver-based Redfin agent wrote within the report. The standard down payment now covers greater than 18% of a house’s purchase price.

The report is predicated on an evaluation of county records in 40 of the most important U.S. metros through June, essentially the most recent month where data is offered. Redfin’s tracking of this metric goes back to 2011.

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Higher down payments improve housing affordability

The housing market has been difficult over the past few years due to soaring home prices and high mortgage rates.

In response to Redfin, the median sales price in June was $442,525, while Freddie Mac’s rate of interest on a 30-year fixed-rate loan averaged 6.92%. At that price and rate, the monthly mortgage payment was greater than $2,700.

For repeat buyers or homeowners planning to purchase a recent property, financing a down payment is more accessible. Increased home prices have led to a record amount of equity, which homeowners can tap through a house sale or an equity loan. With more money available, buyers can take out a smaller mortgage and ideally save on interest over time.

But for first-time homebuyers who can’t depend on selling a current home to fund a down payment, coming up with enough money to place money down normally means outside help.

“These buyers will often utilize the assistance of members of the family to place down greater than they may on their very own,” Foushee said.

In response to recent Redfin data, the variety of Gen Z and millennial buyers counting on family help with down payments has doubled, jumping from 18% in 2019 to 36% this 12 months. Family resources aside, 60% of younger buyers will draw on their very own savings, 39% have a second job to assist finance a house and 22% plan to dip into retirement accounts.

Fortunately, there could possibly be some relief on the horizon. Mortgage rates have ticked down over the past few months, averaging about half a percentage point lower than in June.

Plus, at its next meeting in September, it’s almost certain that the Federal Reserve will reduce its benchmark rate of interest. Typically, a discount within the federal fund rate results in lower rates of interest on every kind of loans, including mortgages.