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What Is The Average Down Payment On A House?

6-minute read

One of the first things on your mind when you buy a home is probably the down payment requirement. How much do you need to save for a down payment? Is it possible to buy a home without one?

We’ll go over what the average buyer pays and what’s required with different loan types. We’ll also give you a few tips you can use to save more toward your down payment. 

Overview: What Is A Down Payment?

A down payment is the first payment you make on your mortgage loan. You pay your down payment to your lender when you close on your mortgage. Most lenders calculate your down payment as a percentage of your loan value. For example, if you buy a home for $200,000 and you have a 20% down payment, you’ll pay your lender $40,000 at closing. Your lender then gives you a loan for the remaining $160,000, which you pay back in monthly installments. Most loan types require that you bring some form of a down payment to closing because it lowers the risk on the lender.

Many home buyers believe that they can’t get a mortgage if they don’t have at least 20% to put down at closing. This isn’t actually true in most cases. It’s possible to buy a home with as little as 3% down, depending on your credit score. You may even be able to purchase a home with no money down if you qualify for certain government-backed loans.

The myth of the 20% down payment comes from the private mortgage insurance (PMI) requirement. PMI is a type of insurance that protects your lender in the event that you default on your loan. Most lenders require that you pay for PMI if you bring less than 20% down to your closing meeting, though PMI doesn’t protect you at all – it protects the lender. While you’ll need to pay PMI if you have a lower down payment, you can request to cancel your insurance once you reach 20% equity in your home on a conventional loan.

There are a few other benefits to putting 20% down on your loan. You may have access to lower interest rates and your monthly payment will be lower as well. You can also save thousands of dollars over time by reducing the amount of money you borrow and the interest you pay. Saving for a large down payment can take time. Keep in mind, you may leave yourself with less money for repairs and renovations later on when you put more money down.

Consider your loan requirements, your financial situation and your individual needs when you decide how much you want to put down on your mortgage loan.

What Are The Down Payment Requirements For A Mortgage?

Different loans have different minimum down payment requirements. Let’s take a look at some of the major loan types:

  • Conventional loan: Conventional loans are the most common type of mortgage loan. The minimum down payment requirement for a conventional loan is 3%. However, your lender might require that you put a larger percentage down if you have a credit score lower than 620 or a lot of debt.
  • VA loan: A VA loan is a government-backed loan available to current and former members of the Armed Forces and the National Guard. You can buy a home with no money down if you qualify for a VA loan.
  • USDA loan: A USDA loan is a government-backed loan that you can use to buy a home in a qualified rural or suburban area. Like a VA loan, a USDA loan can allow you to buy a home with no money down.
  • FHA loan: An FHA loan is a government-backed loan with lower financial and credit requirements than a conventional loan. You can buy a home with an FHA loan as long as you have at least 3.5% down at closing.

Is There An Average Down Payment For A Mortgage?

The average American pays about 6% for their down payment, according to data from Attom Data Solutions. However, keep in mind that there’s no right or wrong answer when it comes to how much you should put down on your loan. Some things to consider when you think about how much you want to put down include:

  • The minimum down payment requirement for your loan type
  • Your emergency fund (or lack thereof)
  • The condition of your home and how much you need to spend on repairs
  • How close you are to retirement
  • Your other debts

How To Save For A Down Payment

No matter how much you decide to put down, you’ll need to do some saving before you close on your loan. Read on for a few tips and strategies you can use to boost your down payment. 

Downsize Your Life

One of the fastest ways to save money for any major purchase is downsizing. Downsizing is the process of simplifying your life and reducing your expenses while you save for a large expense like a down payment. When you downsize, you reduce the amount that you need to pay each month. You then divert that money into your down payment fund until you reach your desired amount.

Ways you can downsize include moving into a smaller apartment, selling some of your things or renting a space in a more affordable area. You might also have an extra family vehicle you can sell or the option to move in with a roommate to save even more. 

Automate Your Savings

Are you the type of person who spends money as soon as it enters your account? You may be able to save more by removing the temptation of seeing cash in your savings account. Automate your savings to help you save more without realizing that you’re missing out.

Here's how it works. First, open a separate bank account to hold your down payment funds. Then decide how much you want to save per month or per pay period toward your down payment. Contact your bank and set up an automatic withdrawal from your primary account into your secondary savings account either once a month or on the day of your direct deposit. Your bank will then take the money out of your account and deposit it into your chosen savings account every period.

This can be a useful method of saving if you know that you’re prone to impulse shopping. Just make sure that you can’t easily access your down payment funds with your debit card. 

Pick Up A Side Hustle

In our on-demand, gig-driven economy, it’s never been an easier time to make cash on your own schedule. A side hustle is a job that you work outside of your standard 9-to-5 job. You choose both the hours you work and where you complete your work. This can be an ideal way to make extra money.

Some examples of side hustles include:

  • Driving for a ridesharing company like Uber, Lyft or Juno
  • Contracting your skills as a photographer, writer, computer programmer or artist
  • Pet sitting or walking
  • Delivering food with an app like UberEats or Postmates

Keep in mind that the money you earn freelancing isn’t tax-free. You’ll need to keep careful records of the amount you earn and report this income to the IRS when Tax Day rolls around. 

Take Another Look At Your Budget

Do you have a household budget? If not, you might find it much harder to come up with the money to put away for a down payment.

First, sit down with your bank statements and look at your cash flow. Write down how much money you have coming in each month. Make sure you include your paychecks, any extra money you make through freelancing and other payments (alimony, child support, etc.). Then look at how much you’re spending on necessities. Necessities include rent payments, student loan payments and utilities. Finally, look at how much you spend on non-necessities like clothing, entertainment and restaurants. You may want to use a budgeting app to help you when you categorize your expenses.

Identify a few areas where you can afford to cut back. Keep in mind that you don’t need to cut everything out of your budget entirely to save for a down payment. For example, if you buy your lunch a few days a week, try to cut down to once a week. Store the extra cash in a separate savings account and keep yourself on track with your spending. 

Summary

A down payment is a lump sum you put toward your mortgage at closing. The average down payment in America is equal to about 6% of the borrower’s loan value. However, it’s possible to buy a home with as little as 3% down depending on your loan type and credit score. You may even be able to buy a home with no money down if you qualify for a USDA loan or a VA loan. Different loan types have different minimum down payments. The specific down payment that’s right for you will depend on your individual circumstances. Budget effectively, automate your savings, pick up a side hustle and downsize to help you save more for a down payment. 

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