The “Average Down Payment on a House” refers to the typical amount of money that homebuyers contribute upfront when purchasing a house. It represents a portion of the total purchase price that is paid in cash, while the remaining balance is typically covered by a mortgage. The average down payment is influenced by several factors including individual financial circumstances, housing market conditions, and mortgage lending requirements. Generally, a higher down payment can lead to advantages such as lower mortgage rates.
Saving up enough money for a down payment to buy a home can be challenging, especially when housing prices keep rising year after year. Unfortunately, that’s the situation many homebuyers are facing currently, regardless of their age.
According to the National Association of Realtors (NAR), the median sales price for existing homes was $266,300 in January 2020. However, by January 2023, it had increased to $359,000. This means that someone aiming for a 5% down payment would have needed $13,315 for the average home in January 2020, but three years later, they would have needed $17,950.
It’s important to note that a 5% down payment is lower than what most people save. The NAR mentions that since 2018, the average first-time homebuyer has made a down payment of around 6% to 7%. For repeat buyers, the average down payment last year was more or less 17%.
Minimum payment by mortgage type
While it’s valuable to consider the average down payment amounts, it’s also important to be aware of the minimum down payment requirements for various types of home loans. These requirements signify the minimum amount of money you must have available to purchase a home, particularly if you are facing financial constraints.
The chart below shows the minimum down payment required for various types of mortgages:
|Mortgage type||Minimum down payment||Limitations|
|Adjustable-rate mortgage (ARM)||5%||These loans offer a temporary teaser rate followed by a variable interest rate that fluctuates based on market conditions|
|Jumbo loan||10%||Higher credit score and cash reserve requirements often apply with these loans|
|Conventional mortgage||3% to 5%||Conforming loan limits apply, which are set at $726,200 in most parts of the U.S, in 2023|
|VA loan||0%||Eligible military service required|
|USDA loan||0%||These loans require homes to reside in areas deemed “rural” by the United States Department of Agriculture (USDA)|
|FHA loan||3.5% if your credit score is 580 or above||If your credit score is 500 to 580, you’ll need a down payment of 10%|
Adjustable-rate mortgage (ARM)
An adjustable-rate mortgage (ARM) is a type of home loan where you begin with a fixed interest rate for a specific period of time. After this initial fixed-rate period, the interest rate transitions to a variable rate that adjusts based on market conditions. When obtaining an ARM, a minimum down payment of at least 5% is typically required, although the specific down payment amount can vary based on factors such as the home price, credit score, income, debt-to-income ratio, and other considerations.
Within the category of adjustable-rate mortgages, there are commonly used options such as the 5/1 ARM, 7/1 ARM, and 10/1 ARM. These terms refer to the initial fixed-rate period of the loan. For example, a 5/1 ARM means that the fixed interest rate remains in place for the first five years, after which it switches to a variable rate that adjusts annually based on market conditions.
A jumbo loan is a type of mortgage that exceeds the limits set for conforming loans. In 2023, the conforming loan limit is $726,200 for most parts of the United States. However, certain higher-cost areas have a higher limit of $1,089,300.
When it comes to jumbo loans, the minimum down payment requirement is usually set at 10% or higher. This means that borrowers are required to provide a down payment of at least 10% of the home’s purchase price in order to qualify for a jumbo loan.
As define by the Consumer Financial Protection Bureau (CFPB), a conventional mortgage refers to any type of home loan that is not back-up by a government program. This means that it is not insured or guaranteed by a government agency such as the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA).
FHA loans, which are insures by the Federal Housing Administration, usually require a minimum down payment of 3.5% of the home’s purchase price. However, if your credit score falls between 500 and 579, a higher down payment of at least 10% may be require. These loans offer competitive rates and terms but has limit to the purchase of a home that you intend to occupy as your primary residence. In other words, FHA loans are not available for investment properties or second homes.
A VA home loan is specifically designed for eligible military service members and veterans. It offers several benefits, including more lenient credit requirements and the advantage of not requiring a down payment at all. Additionally, VA loans often have lower closing costs and competitive rates and terms. It’s important to note that these loans are solely intended for the purchase of a primary residence and cannot be used for investment properties or second homes.
USDA home loans are specifically designed for homes that are classified as “rural” by the United States Department of Agriculture (USDA). These loans offer several advantages, including the absence of a down payment requirement and competitive rates and terms for eligible homebuyers.
However, it’s important to note that there are income restrictions for eligibility. To qualify for a USDA home loan, your household income must not exceed 115% of the median household income in your area. This means that not everyone will be eligible for this type of loan. USDA home loans provide an opportunity for qualified individuals or families to purchase a home in rural areas with favorable financing options.
Average Down Payment on a House by Age
As people get older, it’s not surprising to see that the median down payment for a home increases significantly. This is likely because older homebuyers are often in their peak earning years and may have accumulated equity from previous homes that they can use for their new purchase.
The National Association of REALTORS® Research Group provides reliable and accurate data on this topic. They focus on the percentage of the down payment and do not consider other loan details or the loan amount.
According to their data, the median down payment for all homebuyers is 13%. However, younger buyers between the ages of 23 and 31 have a median down payment of 8%, while buyers aged 76 to 96 have a median down payment of 30% of the purchase price.
All other age ranges in between put down amounts somewhere within that range, as you can see in the chart below:
|Age group||23 to 31||32 to 41||42 to 56||57 to 66||67 to 75||76 to 96|
|Median down payment||8%||10%||15%||21%||28%||30%|
Average Down Payment on a House by State
The average down payment for a home can vary significantly depending on the state you live in. This variation is expected considering the wide range of housing prices across the country. To calculate the average down payment for each state, we used the national average down payment amount of 17% for repeat buyers and applied it to the average sales price of homes sold using data from February 2023.
According to our findings, California had the highest average down payment earlier this year, amounting to $120,020. On the other hand, residents of Iowa had the lowest average down payment, which was $34,357. The chart below provides more details on the average down payment amounts for other states across the United States.
|State||Average Home Price (February 2023)||Average Down Payment at 17%|
What are the Minimum Down Payment of a House Requirements?
As mentioned earlier, the minimum down payment requirements for a home can differ depending on factors such as the type of home loan chosen and the borrower’s credit score. For instance, a conventional mortgage usually necessitates a down payment ranging from 3% to 5%. However, if you opt for a jumbo mortgage with a larger loan amount, it may required to make a down payment of 10% or more.
In contrast, USDA loans and VA loans, which are available to eligible buyers, do not have any down payment requirement. These loan programs provide the benefit of being able to purchase a home without having to make a down payment.
What should be the down payment on your house?
When determining the appropriate down payment for a home, different perspectives exist. However, having a higher down payment than the average can open up more loan options for you. Here’s a breakdown of reasons to consider down payments ranging from 3% to 20%:
3% down payment
By having at least 3% of the home’s purchase price save, you may meet the requirements to qualify for a conventional mortgage. This type of mortgage typically offers competitive rates and terms. Having the necessary funds for a 3% down payment can put you in a favorable position to secure a conventional mortgage and move forward with your home purchase.
5% down payment
If you have at least 5% of the home’s purchase price available for a down payment, you can qualify for a conventional mortgage provided you meet other requirements and criteria. This includes having a minimum credit score of 620. Additionally, if your credit score is at least 580, you may qualify for an FHA loan with a down payment as low as 3.5%, subject to meeting eligibility requirements. These options provide opportunities for homebuyers with different down payment amounts and credit scores to secure a mortgage for their desired home
10% down payment
A down payment of 10% can be sufficient to qualify for a jumbo loan, provided that all other borrowing criteria are met. Jumbo loans are intends for larger loan amounts that exceed the limits set for conforming loans. However, in addition to the down payment, you may also need to meet higher credit score requirements and have adequate cash reserves to be eligible for a jumbo loan.
20% down payment
Saving up a down payment of at least 20% for a home purchase can offer significant advantages. It allows you to qualify for a conventional mortgage without the need for private mortgage insurance (PMI), which is an additional cost that protects the lender in case of default. By avoiding PMI, you can save money on your monthly mortgage payments..
Home value vs. down payment on a House
If you’re thinking of shopping for a home in a specific price range, the table below shows what your down payment would be at 3% down to 20% down.
|Home purchase price||3% down payment||5% down payment||10% down payment||20% down payment|
Pros and cons of putting 20% for a down payment on a house
People often advise that it is important to save up at least 20% of the home’s price before you begin searching for a house. This is because having a larger down payment can bring advantages like avoiding extra costs and getting better loan terms. Unfortunately, as housing prices increase, it becomes harder to save up such a large amount of money.
Consider the pros and cons of saving up 20% before you make this important decision:
Pros of putting down 20%
- Avoid paying private mortgage insurance (PMI): Making a down payment of at least 20% allows you to avoid paying private mortgage insurance (PMI) entirely. PMI can add up to 2% of your loan amount to your yearly expenses, so avoiding it can result in significant savings.
- Borrow less overall: A larger down payment means your loan amount will be smaller from day one. You’ll also have instant equity.
- Enjoy a lower mortgage payment: Having a smaller home loan due to a larger down payment means that your monthly mortgage payments will be lower. This can have a positive impact on your finances by freeing up cash for other bills or providing you with more spending money.
- Qualify for the best mortgage rates: A large down payment combined with good credit is a recipe for success. With a 20% down payment, you’ll be very attractive to the best home lenders competing for your business.
Cons of putting down 20%
- Renting for longer than you have to: Saving up 20% to put down on a home can leave you throwing money away on rent for years, which means you’re not building home equity during that time, either.
- Housing price increases could outpace your savings: With housing prices surging so much over the last few years, buyers trying to save up 20% have been fighting a losing battle.
- Miss out on a home you love: You might miss out on your dream home if you spend too long saving up a big down payment, or you could miss out on a really good deal that comes along.
- Less money for furniture and upgrades: Putting down a big down payment means you’ll have less extra cash for everything else. For example, you may not have enough extra money to get the furniture, home decorations and appliances you really want.
Other Considerations When Determining Your Down Payment on a House
While saving for a down payment house is important when buying a home, it’s essential to consider other expenses as well. The Consumer Financial Protection Bureau (CFPB) advises setting aside funds for closing costs, which can range from 2% to 5% of the home’s sales price. For instance, on a $300,000 home, closing costs could amount to $6,000 to $15,000. It’s important to have this money available, or it will need to be deduct from your down payment.
Furthermore, you should account for moving costs, especially if it involves a long-distance move or hiring a moving company. Lastly, it’s wise to have an emergency fund that covers unexpected expenses. Experts recommend having three to six months’ worth of expenses in a savings account that can be easily accesse.
To maximize your savings, consider keeping these funds, along with your growing down payment, in a high-yield savings account. Capital One 360 savings accounts, for example, offer competitive interest rates and no hidden fees. This allows your money to earn interest and potentially keep up with inflation over time.
Are there low-down-payment loan options?
USDA loans and VA loans don’t require you to put down a specific amount or anything at all, although these loans are focus to a distinct segment of buyers and not everyone can qualify. That said, it may be possible to qualify for a conventional home loan with as little as 3% down, and FHA home loans are available with a minimum down payment of 3.5%.
Frequently asked questions (FAQs)
What if I can’t afford the down payment for the house I want to buy?
If you find that you cannot afford the down payment for the house you desire, it may be beneficial to continue saving until you have enough to qualify. However, if you have at least 3% or 3.5% available for a down payment, you might still be eligible for a conventional mortgage or an FHA loan.
Also, if the home of your interest is in a rural area location, you can explore USDA loans that do not require a down payment.
How to determine if you have enough money to buy a home?
To gain a clearer understanding of the savings goal you need to reach in order to qualify for a home loan, it recommends you to contact a mortgage company in your area. Speaking with a mortgage professional will provide insight into the specific requirements and guidelines to meet in order to become eligible for a mortgage.
If you are not ready to engage with a mortgage professional just yet, you can start by aiming to save at least 3% to 5% of the purchase price of the homes of your interest.
How to save enough for a down payment for a house?
When saving up for a home down payment, it’s advisable to open a high-quality savings account that offers competitive interest rates. By doing so, you can earn interest on your deposits while keeping your down payment funds separate from your other savings.
To accelerate your savings journey, consider setting up automatic money transfers on specific days of the month, such as payday, to consistently contribute to your down payment account. Additionally, make a conscious effort to add “found money” to your savings, such as cash received for special occasions, tax refunds, or any unexpected funds that come your way. These extra contributions can help boost your down payment savings faster.
- Mortgage Loan Rates Today: Compare Rates Up-rise and Drops
- Home Mortgage Demand drops to Lowest Level as Interest Rate rises
- JPMorgan warns UK interest rates could hit 7% in Car and Mortgage Loan
- Advantages of Getting Mortgage to Buy Your House Instead of Renting
- Best Canadian Mortgage rates: Market Update- Factors and Terms