What’s the typical down payment on a house?

So, you’re ready to take the leap into homeownership, and onto the wealth building ladder of real estate… but first, let’s talk about one of the most critical questions on your mind: how much cash do you need to drop upfront? Whether you’re a newbie or a seasoned buyer, the down payment is a biggie. Here’s the inside scoop on what to expect when saving for your future home.

First time homebuyers: the standard is 6-8%

For first-time buyers, the average down payment hovers between 6% and 8% of the home price. If you’re eyeing a $400,000 home, that means you’re looking at a down payment of $24,000 to $32,000. Many first-timers are playing it smart with FHA loans, which let you jump in with as little as 3.5% down and have looser requirements for things such as credit score, and a higher DTI ratio. So, if you’re ready to level up your living situation without draining your bank account, don’t sweat the 20% down myth—it’s 2024, and you have options!

Repeat homebuyers: time to flex that equity

Now, if you’ve bought a home before, odds are you might put a heftier chunk of change down. Down payments for repeat buyers typically land around 17-18%, over double what new homeowners are dropping. So, on our lovely $400,000 home example, you’re talking about $68,000 to $72,000. Why the jump? Seasoned buyers often have equity from their previous digs, allowing them to come in hot with a bigger down payment because they’ve built wealth through their prior real estate investment. More cash down means lower monthly payments and—you are closer to hitting 20% ownership of your home, meaning you can ditch your PMI (private mortgage insurance).

Answers for your burning questions

1. Can I really put less than 20% down? Heck yeah! First time buyers can snag FHA loans with as little as 3.5% down, and veterans can roll in with 0% down thanks to VA loans, and conventional loans as the tried and true offering allow for a 3% down payment. 
2. How does the down payment change my mortgage? The more you put down, the less you owe, which means lower monthly payments and less interest over the life of the loan. Plus, if you hit that sweet 20% mark, you can kiss PMI goodbye, which saves you serious cash every month. However, truth is the money you will save by owning, and not renting, will pay off, so even if you’re paying PMI (and most buyers are to start,) that is a-okay.
3. Are down payments different based on where I live? Absolutely but not because down payment requirements are different, rather home prices will vary drastically! Markets are like snowflakes—no two are alike. In pricey places like California, you might need to put down a hefty chunk, while in more affordable areas like Texas, the average down payment can be way lower. Do your homework and see what your local market is serving up!
4. What if I can’t save enough? Don’t panic! Check out state programs or down payment assistance options. Chat with a lender about creating a savings pan, so you can get on the pathway to purchasing. Income is the main factor when it comes to buying a home, so considering additional income sources or switching up your job could be real things to weigh in.
5. Is the down payment my only upfront cost? Nope! Closing costs are a real thing and usually run about 2% to 5% of the home price. For a $400,000 home, that’s another $8,000 to $20,000 you need to have ready. So, factor that into your budgeting plan and check out our article on other first time home buyer saving tips!
6. How does my credit score affect my down payment? Your credit score can make or break your down payment requirements. Higher scores can qualify you for better loan terms and potentially lower down payments. So, work on boosting that score to maximize your options.
7. What are the implications of a smaller down payment? Sure, a smaller down payment can get you into a home quicker, but it usually means higher monthly payments and potentially a higher interest rate. Plus, you might be stuck with PMI, which is just another expense to deal with.

Conclusion

Getting to grips with down payments is crucial as you embark on your home-buying adventure. Whether you’re a first-time buyer or a seasoned pro, understanding what’s typical will help you make informed decisions and navigate the wild ride of homeownership with confidence. So, explore your options, arm yourself with knowledge, and get ready to make your dream home a reality!

If you’re ready to start your journey to homeownership, get pre approved with Tomo Mortgage today.