What Is the Average Down Payment for a Home?

One of the biggest hurdles to homeownership is saving up the all-important down payment. It can impact how much house you can afford, what types of loan you use, and how long you need to wait to become a homeowner. So what is the typical down payment amount for home buyers?

What Is a Down Payment?

The down payment is a percentage of the home’s value that the buyer pays upfront during the purchase. You finance the remaining amount with a home loan, known as a mortgage. Most lenders require you to make a 20% down payment for a conventional mortgage. However, they offer special programs with lower down payment options if you meet other criteria.

The down payment is required so that the lender knows that the borrower has saved and given homeownership serious financial consideration. It lowers the risk that the borrower will just walk away from their home and default on paying their loan back.

Average Down Payment Amount

The National Association of Realtors found that homebuyers overall put down an average of 12% in 2019. First-time homebuyers tended to finance a larger portion and have a smaller down payment, with an average down payment of 6%. Experienced homebuyers put down an average of 16%. This can be due to money made by selling their previous home, which was a major contributing factor in 38% of down payments. 60% of respondents said that they saved up money for their down payment.

Down Payment Requirements

The minimum required amount of the down payment depends on the type of loan. Here are a few of the most commonly offered mortgage types:

• Conventional loan: 3% minimum down payment. A 3% down payment is the absolute minimum, but you will need to pay for private mortgage insurance, PMI, until you have at least 20% equity in your property. If your down payment is 20% or higher, you do not need to pay PMI.
• VA loan: No down payment required. Veterans and current members of the military and National Guard are eligible to use a VA loan.
• USDA loan: No down payment required. You must be purchasing a home in a designated rural or suburban area.
• FHA loan: 3.5% minimum down payment. You will typically pay for mortgage insurance throughout the life of the loan, even after reaching 20% equity in your home. This insurance requirement remains until certain conditions are met, affecting your overall mortgage costs.

Saving for a Down Payment

No matter the type of loan, saving for a down payment is a smart move, even if it’s not required. You can achieve this by setting up a monthly savings allotment, taking on a side hustle, or making lifestyle adjustments. This can reduce the amount that you have to borrow and result in more favorable loan terms.