Are you wanting to buy a home but struggling to save up enough money? We have good news! You may not need 20% for a down payment.
“Saving for a down payment often represents the biggest hurdle for first-time home buyers. In December, 25% of buyers on realtor.com® who were looking to purchase their first home said a key factor holding them back was lacking funds for a down payment. No matter how you cut it, it represents a big chunk of cash. But here’s the thing: It doesn’t always need to be quite so big as most think.
Many first-time buyers don’t realize that it doesn’t necessarily take 20% down to purchase a home.
Indeed, the average down payment in the U.S. on mortgages used to purchase a home was 11%, according to our analysis of loan records from Optimal Blue, an enterprise lending software company.” (Realtor.com)
That being said, this is not always the case. Sometimes it actually takes more than 20% for buyers to purchase their next home.
“Borrowers with jumbo mortgages had to put the highest percentage down, with an average of 23%. Conforming mortgages averaged 18% in 2016. On the other hand, government-backed FHA, VA, and USDA mortgages featured average down payments of 4.8%, 2.2%, and 0.4%, respectively. These government programs are meant to open up more pathways to homeownership for first-time buyers, veterans, and heads of households in rural areas.” (Realtor.com)
In what area are you planning on living? This could drastically change the down payment you are responsible for paying. A higher market will not only have higher priced homes, but it will also require a larger down payment. On the other hand, a lower market will have lower priced homes and require lower down payments. Why does the market matter? That’s a good question. Higher priced homes are less likely to be covered by a low down payment loan. Thus, the higher markets with more expensive homes are going to require more down payment.
Without a high down payment on these higher priced homes, the monthly mortgage payment becomes too much to afford. Because of this, first time home buyers will tend to migrate toward the lower markets so they can have a lower down payment. If they are even able to save up for a 20% down payment, the option to put less down is appealing because it leaves money to furnish their new home.
Here are some examples of down payments in different areas across the nation (information from Realtor.com):
- The average purchase price of homes financed with a mortgage was just over $290,000 in 2016 across the U.S. The average down payment amount was $32,680, or 11%.
- In the District of Columbia, where the average purchase price was just over $630,000, the average down payment was almost $110,000, or more than 17%.
- That $110,000 (from the point above) could fund more than two-thirds of the average purchase price of $165,000 in Mississippi. And in that low-cost state, the average down payment was under $9,000, or a little more than 5%.
- Buyers in San Francisco County put down an average of more than $326,000 on homes purchased in 2016, which represented an average down payment of 29.9%.
- In Manhattan, buyers shelled out an average down payment of (gulp) 30.2%, but because the average purchase price was slightly less than San Francisco, the dollar amount of the down payment was a more modest $219,000.
- In more rural counties in the South and Midwest, average down payments can be closer to 3% and often amount to $5,000 or less. For example, in Tennessee’s Tipton County, an outer suburban county of Memphis, the average down payment was just over $3,500. The average price of a home purchased with a mortgage in 2016 was just under $138,000.
So…what’s the point of all of this? Well, if you are ready to dump the rent and own your home or you are just ready for a change, don’t always think that a 20% down payment is an absolute. There are different options available for different types of loans, and it might just depend on what area you are looking to buy.
Do you want to know more about this? Are you ready to start your home search? Give us a a call @ 720-593-2014. We work closely with many lenders that can make your dream of buying a home become a reality while our amazing team of agents works hard to find your perfect home. We look forward to hearing from you!