Homebuyers are struggling to make bigger down payments
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Home prices have been rising, and so have down payments.
The median down payment among homebuyers in December was $63,188, according to a recent report by Redfin. That’s up 7.5%, or about $4,000, from a year prior.
“That is mostly reflecting the fact that home prices have increased,” said Chen Zhao, an economist at Redfin.
On top of high home prices, other issues homebuyers face include high inflation, volatile mortgage rates and limited savings balances.
The typical homebuyer down payment was equal to about 16.3% of the purchase price in December, when the median home-sale price was $428,000, per Redfin data.
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While homebuyers are putting down more cash for their home purchases, down payments continue to be a major hurdle.
A new report by Bankrate found that 81% of would-be buyers say that down payment and closing costs are obstacles toward owning a home some day. For 52%, the hurdle is “very significant” while for 29% it’s “somewhat significant.”
The survey conducted by YouGov Plc polled 2,703 U.S. adults in mid January.
What to know about low-, no-down-payment loans
There are low- and no-down-payment mortgage options across federal agencies like the Fair Housing Association, the Department of Veteran Affairs and U.S. Department of Agriculture.
The Department of Veterans Affairs offers VA loan programs, and those who qualify can put down as little as 0%. Mortgages from the U.S. Department of Agriculture, referred to as USDA loans, aim to help buyers purchase homes in rural areas and also offer 0% down payment options.
Federal Housing Administration loans, or FHA loans, can require as little as 3.5% down for qualifying borrowers, which include first-time buyers, low- and moderate-income buyers and buyers from minority groups.
You don’t get anything for free.
Melissa Cohn
regional vice president at William Raveis Mortgage
Recently, more people are using mortgage options sponsored by the government. About 15% of mortgaged home sales used an FHA loan in December, up from mid-2022’s decade-low of roughly 10%, Redfin found. The share of those who used a VA loan rose to 6.7%, from 6.2% a year earlier.
The increase could be a sign of buyers having an upper hand in the market, said Redfin’s Zhao. Typically, sellers prefer to avoid FHA loans because they can involve a longer processing time, she said. For this reason, buying with an FHA loan can be less advantageous in a highly competitive housing market.
While low-down payment mortgages can help someone achieve homeownership, there may be additional costs involved.
With less cash upfront, you will need to borrow more, making your monthly mortgage payment much higher, experts say. And you could also face higher mortgage rates.
“The best priced loans are going to do a larger down…
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