The average down payment is now closer to 35% instead of the usual 20%. (iStock )
Every aspect of buying a home has become more expensive since the COVID-19 pandemic. Home prices have been hitting record highs in most months, and mortgage rates are still hovering in the high 6% range. All of these factors are leading to higher down payments. The average down payment needed for a median-income family to purchase a typical home has reached $127,750. According to Zillow.
Instead of the 20% down payment that many lenders suggest for a typical mortgage, prospective buyers must now put down 35.4% to make the average home affordable — a down payment that’s required for a home worth about $360,000.
The down payment requirements in today’s housing market are in stark contrast to five years ago, when buyers could purchase a median-priced home without putting down any money at all.
“Without outside help, like gifts from family or a booming stock market, it’s extremely difficult to save enough,” says Skylar Olsen, chief economist at Zillow. “To make finances work, some people are buying co-ops or homes with extra rooms to rent out and moving around the country. Down payment assistance is another great tool that’s all too often overlooked.”
Saving for a $127,750 down payment is no easy feat: It would take an average-income household nearly 12 years to save up, and that’s assuming a 10% monthly savings rate and at least a 4% annual return.
Of the nation’s 50 largest housing markets, only 10 offer the option to buy with a 20% down payment or less. Pittsburgh is one of the more affordable markets: Buyers in the city can often purchase a home with no down payment.
Meanwhile, most California markets are out of reach for the average buyer: In San Jose, a median-income household often needs a down payment of more than $1.3 million to qualify for a mortgage on a typical home, according to Zillow.
When you’re ready to compare mortgages, consider using Credible , which makes it easy to compare interest rates from multiple lenders without affecting your credit score.
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Average monthly mortgage payment falls to $115 below record high
While today’s buyers struggle to come up with large down payments, homeowners are seeing their average mortgage payments decrease. In the four weeks ending July 14, the average home payment was $2,722, $115 lower than the all-time high. Redfin reported.
Falling mortgage rates are allowing buyers and adjustable-rate mortgage borrowers to slightly reduce their monthly payments. For example, a buyer with a monthly budget of $3,000 can purchase a $450,000 home at a 6.8% interest rate. This represents a $25,000 increase in purchasing power compared to April, when the same buyer could purchase a $425,000 home at a 7.5% interest rate.
Many sellers, tired of waiting for mortgage rates to fall more dramatically, are putting their homes on the market, helping to boost the number of homes on the market by 6.4%, the highest level in nearly four years, and easing some of the pressure on buyers. But it’s unclear what the market will look like going forward.
“With the Fed now increasingly likely to cut interest rates before the end of the year, some potential homebuyers are waiting until mortgage rates fall further before purchasing,” said Chen Chao, head of economic research at Redfin.
“But their wait may be in vain, as mortgage rates are unlikely to fall significantly in the coming months, as the market has already priced in the September rate cut, followed by several more cuts expected between the end of 2024 and 2025,” Chao said. “In fact, now may be the right time for potential homebuyers to make a serious offer before prices rise further and they lose leverage. Moreover, there are more homes to choose from and many of the properties are getting older, giving buyers more room to negotiate.”
If you’re considering buying a home, you can check out Credible to find the best mortgage rates for your financial situation by comparing multiple lenders at once.
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Home insurers demand premium hikes in some states
One home-related expense that continues to plague consumers is homeowners insurance, with states across the U.S. experiencing significant increases in homeowners insurance rates.
California has faced one of the worst home insurance crises in years, largely due to a sudden surge in claims caused by devastating wildfires, leaving insurers struggling to keep up with the sudden surge in claims.
State Farm recently requested its largest ever premium increase in California. State Farm General, the company’s California subsidiary, said: Submitted a request for a fee increase The increase will affect homeowners and condo owners as well as renters. The increase could increase homeowners’ tax rates by 30%, condo owners’ tax rates by 36%, and renters’ tax rates by 52%.
Allstate is also seeking to raise homeowner insurance rates in California this year. Average salary increase rate: 34.1% Statewide, that’s a slight decrease from the 39.6% increase initially hoped for last year.
Rising repair costs and frequent severe weather events are the main reasons Allstate is asking for price increases. Combined with legal abuses, these issues have left the company struggling to meet demand.
Coverage amounts vary, so it’s important to shop around to find the right home insurance plan for your needs. Visit Credible to start the process and maximize the value you get from your homeowners insurance.
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