Soaring Down Payments Challenge U.S. Homebuyers

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SEATTLE, WA — A new analysis from Zillow® reveals that to comfortably afford a typical home in the U.S., the median-income homebuyer needs nearly $127,750 for a down payment. This equates to 35.4% of the home’s value. Five years ago, when mortgage rates were just over 4% and home prices were about half of what they are now, buyers could afford homes with no money down.

That $127,750 figure is what a median-income household must save to buy a home valued at around $360,000. This ensures that monthly mortgage payments don’t exceed 30% of the household’s income.

The sharp increase in required down payments highlights how the pandemic ignited a hot housing market and how rising mortgage rates have since cooled it. High mortgage rates have sidelined many buyers and sellers, intensifying competition among those still in the market.

“Down payments have always been important, but even more so today,” said Skylar Olsen, chief economist at Zillow. “With so few available homes, buyers may have to wait longer for the right one, especially now that they can afford less. Mortgage rate movements during that time could make the difference between affording that home and not.”

Saving up $127,750 would take a median-income household about 12 years, assuming they save 10% of their income each month with a 4% annual return. Consequently, 43% of last year’s buyers used financial gifts from family or friends for their down payment, the highest rate since at least 2018.

Despite these challenges, there are still affordable areas in the U.S. In ten major metropolitan areas, a typical home is affordable to a median-income household with less than a 20% down payment. Pittsburgh stands out as the most affordable market, where a median-income household can afford a typical home with no money down.

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On the other end, California represents the least affordable markets. A median-income household in San Jose would need to put down more than $1.3 million to afford a typical home. In Los Angeles, the required down payment is 81.1%, or $780,203, the highest in the nation. This has led to population declines in many California metros as residents move to more affordable areas.

For those who qualify, down payment assistance programs can significantly reduce the financial burden. In Minneapolis, for example, the average down payment assistance available is just under $22,750. Without this assistance, a median-income buyer in Minneapolis would need a 27% down payment to afford a typical home. With the assistance, the required down payment drops to 21%.

These findings shed light on the significant financial hurdles facing today’s homebuyers, emphasizing the need for strategic savings and potential reliance on financial support programs.

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