Homeownership continues to be an aspiration for many Americans. However, as the prices of homes continue to rise, this dream is more difficult to achieve for many, especially considering the amount of upfront costs associated with purchasing a home. One of the major upfront costs associated with purchasing a home is the downpayment.
Although the downpayment is not the only cost associated with purchasing a home, it is commonly the focus of saving for a home purchase. Downpayments are often represented as a percentage of a home’s price, such as 5% down or 10% down, making trends in home prices a major factor in the amount a potential buyer needs to save. With the median sales prices of homes rising to over $417K, as reported in June 2024 by the United States Census Bureau, many Americans are concerned about their ability to save for a home. Leaving the question of how much a person needs to put down for a home.
The 20% Downpayment
The most common benchmark for how much to save for a home is 20% of the home purchase price. However, a 20% down payment is not necessary to purchase a home. So why is this benchmark so commonly cited? A 20% downpayment would allow a home buyer to skip private mortgage insurance (PMI) when taking out a conventional loan. Additionally, a higher downpayment may help qualify for lower interest rates and will create a lower monthly mortgage payment. In a competitive housing market with low inventory, a higher downpayment may also give buyers an edge in securing the home they want.
The Median Downpayment
Despite the benefits of putting 20% down, putting down 20% for a home purchase is no longer the norm. In the 2024 Home Buyers and Sellers Generational Trends Report, the National Association of REALTORS® Research Group found that the average downpayment for all home buyers was approximately 15%. The median percent down payment generally increased as the age range of the buyer increased. For example, the median percent downpayment for home buyers aged 25 to 33 was 10%, whereas this percentage grew to 35% for home buyers aged 69 to 77.
This data illustrates that many home buyers opt to put down significantly less than 20% to purchase their homes. These statistics are likely influenced by the increasing cost of homes, making larger down payments difficult to save for, as well as by the ability of buyers to finance homes with less than 20%. Some buyers put less down to reduce the time they wait to purchase. Others may want to ensure they still have other savings available or simply can only afford a downpayment of less than 20%.
Regardless of the reason, putting down significantly less than 20% has not held back buyers from fulfilling their desire to own a home with more loans offering a low minimum down payment. For example, FHA loans have a minimum downpayment as low as 3.5% if the buyer has a credit score of 580 or higher. VA loans, available to military service members, veterans, and eligible surviving spouses, do not usually require a down payment at all. Even some conventional mortgages offer a minimum downpayment as low as 3%.
How Much Should You Put Down?
As with most personal finance decisions, how much to put down on a home is multi-faceted and individualized. Larger down payments can reduce monthly expenses for homeownership, make offers more competitive, potentially lower mortgage rates, and help buyers pay off their mortgages faster. Lower down payments can make home ownership more accessible and preserve flexibility for future expenses or investment opportunities. The reassuring thing is that while saving for a downpayment remains one of the most daunting parts of the home-buying process, there are pathways to ownership that do not require saving over a fifth of the purchase price.
