Saving up for a down payment on a house is no easy task, especially when housing prices continue to rise. So, what is the average down payment on a house in 2024? Let’s dive into the numbers and explore the minimum payment requirements for different mortgage types, as well as the down payment amounts based on age and state.
The Average Down Payment
According to the National Association of Realtors (NAR), the average down payment for first-time homebuyers falls between 6% and 7%. For repeat buyers, the average down payment increases to around 17%. These percentages give us an idea of what most people are putting down when purchasing a home.
But what about the actual dollar amounts? In January 2020, the median sales price for existing homes was $266,300. However, just three years later in January 2023, the median sales price jumped to $359,000. This means that someone saving for a 5% down payment would have needed $13,315 in January 2020, but $17,950 in January 2023.
Minimum Down Payment by Mortgage Type
Understanding the minimum down payment required for different types of mortgages is essential when planning your home purchase. Here’s a breakdown:
- Adjustable-rate mortgage (ARM): These loans typically require a minimum down payment of at least 5%. Keep in mind that your exact down payment amount may depend on factors such as the home price, credit score, income, and debt-to-income ratio.
- Jumbo loan: If you require a loan amount that exceeds conforming loan limits, the minimum down payment is typically set at 10% or higher.
- Conventional mortgage: Conventional mortgages typically require a down payment of 3% to 5%.
- FHA loan: FHA loans allow for a minimum down payment of 3.5%, but if your credit score falls between 500 and 579, you’ll need to put down at least 10%.
- VA loan: Eligible military service members and veterans can take advantage of VA loans, which require no down payment.
- USDA loan: USDA loans are available for homes located in rural areas and come with no down payment requirement.
Down Payment by Age
Unsurprisingly, the median down payment for a home tends to increase as buyers age. Older buyers often have more equity from previous homes and are closer to their peak earning years. According to the National Association of Realtors (NAR), the median down payment for all homebuyers is 13%. However, younger buyers (ages 23 to 31) have a median down payment of 8%, while older buyers (ages 76 to 96) put down a median percentage of 30%.
Down Payment by State
The average down payment for a home varies depending on the state you live in. Using national averages, we can estimate the average down payment for each state. In our analysis, California had the highest average down payment of $120,020, while Iowa had the lowest average down payment of $34,357.
What Should Your Down Payment Be?
Determining the right down payment for your home depends on various factors. Here’s a breakdown of different down payment options and their benefits:
- 3% down payment: Stashing away at least 3% of the purchase price can help you qualify for a conventional mortgage with competitive rates and terms.
- 5% down payment: With a 5% down payment, you can qualify for a conventional mortgage if you meet other requirements. FHA loans are also an option with a 3.5% down payment and a minimum credit score of 580.
- 10% down payment: A 10% down payment can qualify you for a jumbo loan, but additional criteria such as higher credit and cash reserve requirements may apply.
- 20% down payment: Saving up at least 20% allows you to avoid private mortgage insurance (PMI) and qualify for the best mortgage rates.
Pros and Cons of a 20% Down Payment
While saving up for a 20% down payment is often recommended, it’s important to weigh the pros and cons:
Pros:
- Avoid paying private mortgage insurance (PMI)
- Borrow less overall and have instant equity
- Enjoy a lower mortgage payment
- Qualify for the best mortgage rates
Cons:
- Renting for longer than necessary
- Housing price increases may outpace your savings
- Potentially missing out on your dream home or a great deal
- Having less money for furniture and upgrades
Other Considerations
It’s crucial to consider other costs associated with purchasing a home. Closing costs typically range from 2% to 5% of the sales price, so make sure to have funds available. Additionally, factor in moving costs and create an emergency fund with three to six months of expenses. Keep your down payment and savings in a high-yield savings account to earn interest and combat inflation.
Low-Down-Payment Loan Options
If saving enough for a down payment seems challenging, various low-down-payment loan options are available. USDA and VA loans require no down payment, while conventional mortgages can be obtained with as little as 3% down. FHA loans are also an option 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? Consider continuing to save until you have enough for a conventional mortgage or FHA loan. Alternatively, explore USDA loans if buying in an eligible rural area.
- How do I determine if I have enough money to buy a home? Contact a mortgage company to understand the requirements. Aim to save at least 3% to 5% of the purchase price before reaching out.
- How do I save enough for a down payment? Open a high-yield savings account and set up automatic transfers on payday. Utilize “found money” like cash gifts and tax refunds.
Remember, the key to a successful home purchase is careful planning and understanding your options. For more insights and tips on personal finances, visit Personal Finances Blog.