Down payments have always been important, but in today’s real estate market, they can make the difference between a home you can afford and one you can’t. New research from Zillow finds that a median-income household would need to put down more than the 20% that used to be standard for buyers. Today, they’d need a 35.4% down payment in order to afford the payments on a typical U.S. home.
According to Zillow’s new analysis:
- To comfortably afford a typical U.S. home - valued at about $360-thousand - a buyer making the median income would need a down payment of $127,750, or 35.4%.
- That would get the monthly mortgage payments down to no more than 30% of that household’s monthly income.
- To save $127,750, it would take about 12 years for a household making the median income, if they saved 10% of their income and got a 4% annual return.
- That’s a long time to save for a down payment, so it’s not surprising that 43% of buyers in 2023 used a gift from family or friends for at least part of their down payment.
- Five years ago, when mortgage rates were just above 4%, a median-income household would have been able to afford the typical U.S. home with no money down.
- Now, a median-income household can only afford a typical home with 20% down in fewer than 10 of the 50 biggest U.S. markets.
- In pricier markets, middle-income buyers would need even bigger down payments for the more expensive homes. In Los Angeles, a median-income household would need a 81.1% down payment ($780,203) to afford a typical home, the highest in the country.
- Median-income households in the New York City metro area would need 75.3%, in Miami, they’d need 64.5% and in Boston, they’d need a down payment of 61.7%.
Source: Zillow
Scott's Thoughts:
- And that’s why I’ll probably be renting forever! Who can afford that?
- Many people are fortunate to borrow that down payment from mom and dad...
- Sounds terrible but rent is also terrible! Higher than ever!