When buying a home, many Americans consider a 20% down payment to be the norm, the ideal amount of money to put down to get a conventional mortgage with no private mortgage insurance and to keep monthly payments reasonably affordable.

However, a majority of homes are actually bought with far less than 20% down, although opportunities for low down payments are more widespread in certain parts of the country than others.

What is the average mortgage down payment?

Lodestar Software Solutions’ loan estimate calculator has collected over 600,000 loan cost estimates from across the U.S. containing detailed information about home prices, loan amounts and locations.

“From working with nearly a thousand lenders throughout the country, LodeStar has collected a wealth of real estate transaction information over the past year,” LodeStar Software Solutions CEO Jim Paolino said. “This data can tell us a lot about market behavior and trends in the industry.”

Analyzing this data set, the median down payment amount in the U.S. in 2018 was $15,490, which is 5.37% of the median price of $270,000. In the previous year, 2017, the median down payment was $15,150, which is 6.06% of the median price of $250,000.

F2Since the median indicates the middle value if all the prices were lined up in order, this means that half of the searches run in LodeStar’s calculator were for loans with a down payment of less than 5.37%.

Not only is the median down payment today far below the benchmark of 20%, but more than two-thirds, 68%, of 2018 home purchases in LodeStar’s data had a down payment of less than 20%. About 43% of homebuyers put less than 5% down for their home, and 26% put at least 5% down but less than 20% down. As for larger down payments, 15% of home purchases had a down payment of exactly 20%, and the remaining 17% were greater than 20% down.

Looking at the overall distribution of the down payments, the largest concentration of down payments is at or below 10% with another distinct spike at 20% and smaller spikes at 10% and at 100%, a payment in full.

Down payment trends over time

Over the past two years, a median down payment of 5% to 6% is not out of the ordinary. Comparatively, historical data from ATTOM Data Solutions shows that over the past 18 years, the median down payment has consistently remained less 10%, fluctuating between 9% and just under 3%.

The median down payment was hovering around 7% in the early 2000s, however it dropped to just 3.3% in late 2006. From there, the median down payment rose to 6.6% in 2007 before bottoming out at 2.6% in 2009. After these wider variations, which were likely related to the Great Recession, the median down payment has stabilized in the 5% to 7% range over the past five years.F2

“For many Americans, accumulating a 20% down payment is simply too burdensome,” Res/Title National Sales Manager Brooke Solomon said. “In some of the more expensive markets, it can take a decade or more for a home buyer with an average income to save for a 20% down payment. For others who already have the money, they often choose to use it in other ways such as savings for retirement or paying off other loans.”

Average down payment percentages by state

While the median down payment is consistently in the single digits, down payments vary considerably depending on geographical location, both as a dollar amount and as a F2percentage of home price.

When grouping the LodeStar data by state and focusing on 31 states that have at least 1,000 purchases per year in the data set, a ranking of median down payments as a percentage of median home price puts California in first place with a median down payment of 20.18%.

Only 10 of the 31 states have a median down payment that is more than 10%. Georgia has the smallest median down payment of all 31 where homebuyers purchase a home with a median down payment of just 2.52%.

The differences in home prices across and states and different percentages put down in each state mean that the down payment amounts also have a wide range. California, an expensive state with a median purchase price of $570,000, has a median down payment amount of $115,000, 20% down, while at the low end, the median home buyer in South Dakota buys a $190,000 home with a down payment of $5,250, or 2.57% down.

Factors affecting median down payment

This data raises the question of why the average down payments vary so much by state. To get a loan with a small down payment, buyers have several different options. The Federal Housing Administration insures loans with as little as 3.5% down, although there are loan amount maximums which may not be enough in high-cost real estate markets such as Manhattan.

The Department of Veterans Affairs offers loans with as little as 0% down to veterans, but these are not available to general consumers. The Department of Agriculture offers loans in rural or suburban areas with 0% down but has income restrictions as the program is meant to help borrows of modest means.

Finally, Fannie Mae and Freddie Mac offer conventional 97 loans with a 3% down payment, but there is a strict loan limit amount of $424,100 and only single-family homes are eligible, meaning that these programs are less useful in urban and high-cost areas.

“It is incredibly important for mortgage and real estate professionals to educate consumers on the amount to save for down-payments, especially first-time homebuyers,” said Peter Benjamin, Lafayette Federal Credit Union senior vice president of mortgage lending. “Having to pay even a few thousand dollars less than they thought can translate into them buying a new home months ahead of time.”

Taking into account the different options home buyers have for obtaining a loan with a small down payment, some possible variables at the state level that could affect median down payment percent are:

Average Home Price

The average price of purchasing a home in the state. Price could influence down payment percentages because some areas may be too expensive for some types of low down payment loans.

Percent in single family homes

The percent of state residents who live in a single-family house, as opposed to a multiple unit dwelling such as a condo or coop. Condos or multifamily houses could have more stringent lending requirements which require more money down.

Percent of homeowners

The percent of state residents who own their own home. This is another metric than can help to approximate the amount of owner-occupied housing, as investment properties and rental properties may have different requirements for borrowing.

Percent of first time homebuyers

The percent of homebuyers who are buying a home for the first time. Repeat homebuyers often put equity from a previous property into the new purchase, so more first-time homebuyers could be associated with smaller down payments. Also, some low down payment loans are only available to first time homebuyers.

Percent of veterans

The percent of the state population who are veterans, which is also tied to the percent of the population who is eligible for VA loans.

Average household income

The average income of a household in the state. Along with median home price, median household income is a factor in determining the affordability of purchasing a home.

Property type

The percent of state residents living in an urban or suburban area, as opposed to a rural area. This may be related to the availability of USDA loans, which are only applicable to rural homes.

F2

Taken together, these variables approximate the affordability of housing in each state, and factors such as urban vs rural which impact loan eligibility. For this analysis, data for these variables was gathered from multiple sources including the U.S. Census Bureau, Department of Veterans Affairs and LodeStar’s own data set.

After gathering the external data, the next step was to calculate correlations between the variable and median down payment percentage. Correlation is a measure of the strength of a relationship between two variables, whether positive or negative.

The image below shows how the different variables are correlated with down payment percentage. Stronger positive correlations are to the right and stronger negative correlations are to the left, while weaker correlations fall in the middle.

Of the variables selected for this analysis, median home price has the strongest correlation with median down payment percentage. The strong positive correlation indicates that when home price increases, the percent of money down also increases.

More specifically, as the average home price increases by $100,000, the average down payment percent increases by 3.39%. Visualizing the relationship between median home price and median down payment percent shows a cluster of less expensive states with lower percentage down payments, while other more expensive states have a higher percent of money put down on average.

While median price is positively correlated, the percent of single-family home dwellers and the percent of homeowners are negatively correlated with median down payment percent, indicating that down payment percentages decrease in states with more single-family housing and homeowners, and conversely increase in states with more multi-family housing and rentals.

The remaining variables have weaker correlations with down payment percent, but there are weak indications that more urban states and states with higher F2household income have higher down payment percentages, while states with larger veteran populations have lower down payment percentages. Perhaps counterintuitively, the first-time homebuyers variable is positively correlated with higher down payment percentages, indicating that states with more first-time homebuyers typically require a higher percent down payment than states with fewer first-time homebuyers.

What this means

The median down payment in the United States is closer to 5%, rather than 20%, so there are plenty of opportunities for homebuyers to buy with little money down, although some prospective homebuyers might not be aware of these options. While a higher down payment removes the need for mortgage insurance and lowers monthly payments, a lower down payment can allow homebuyers to spend less time saving for the down payment or can free up the money for other investments or debt reduction.

“The loan officer is uniquely positioned to have these conversations with potential borrowers,” said Kimberly London, USALLIANCE Financial vice president of real estate lending, closing and servicing. “We train all our LO’s to take into account all aspects of the borrower’s situation to determine any factors they can utilize to their advantage.”

However, the prevalence of low down payment loans is not evenly distributed – some states have far lower down payments than others. The average down payment percent in each state is most closely related to the average home price, and an increase in average home price is associated with a higher down payment percent.

Further, the average percent down payment also increases in areas with more multi-unit housing and decreases in states with more single-family housing. This indicates the possibility that loan requirements generally get more stringent at higher purchase prices as well as for multifamily homes and condos.

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