In December, the median down payment for homebuyers reached $63,188, marking a 7.5% increase from the previous year. This figure reflects a growing trend where typical down payments now constitute about 16.3% of the purchase price, with the median home-sale price standing at $428,000. Despite these figures, a report by Bankrate highlights that 81% of potential buyers identify down payment and closing costs as significant hurdles to homeownership.
Private Mortgage Insurance (PMI) poses an additional challenge for buyers unable to make a 20% down payment. PMI costs range from 0.5% to 1.5% of the loan amount annually, influenced by factors such as credit score and down payment size. For instance, on a $300,000 loan, mortgage insurance premiums could climb from $1,500 to $4,500 per year or translate to monthly payments of $125 to $375.
Federal agencies offer several low- and no-down-payment mortgage options to alleviate financial pressure on homebuyers. Federal Housing Administration (FHA) loans allow qualifying borrowers to make down payments as low as 3.5%. In December, 15% of mortgaged home sales utilized an FHA loan, up from mid-2022's decade-low of approximately 10%.
Mark Hamrick, a senior industry analyst at Bankrate, underscores the importance of exploring different options.
"The good news is the federal government isn't the only game in town," – Mark Hamrick, senior industry analyst at Bankrate
The U.S. Department of Agriculture (USDA) loans provide 0% down payment opportunities, and the Department of Veterans Affairs (VA) offers VA loan programs with similar terms for those who qualify. The share of homebuyers using VA loans increased to 6.7% in December, up from 6.2% the previous year.
Melissa Cohn, regional vice president at William Raveis Mortgage, notes that larger down payments often result in better-priced loans.
"The best priced loans are going to do a larger down payment, so the less you put down, the higher the rate is, the greater the risk," – Melissa Cohn, regional vice president at William Raveis Mortgage
However, Cohn acknowledges that not everyone can afford such a luxury.
"For people who don't have the luxury or haven't been able to save enough, that's a good option," – Cohn
Despite these available options, coming up with a down payment remains a "very significant" challenge for 52% of potential buyers. This struggle underscores the ongoing difficulty in saving sufficient funds amidst rising home prices and economic uncertainties.
Hamrick advises prospective buyers not to rush the process.
"Time isn't a nemesis" – Mark Hamrick, senior industry analyst at Bankrate
He emphasizes that patience and thorough exploration of available loan options can significantly ease the journey towards homeownership.