Homebuying has its commandments, a set of rules that have become gospel in recent years. Act swiftly. Be decisive. Secure pre-approval for your mortgage. Expand your horizons and maintain flexibility in your quest for an affordable dream home. Adapt to the ever-changing landscape of the real estate market.
However, one commandment looms larger than the rest: contribute the most significant down payment you can afford.
The Importance of Down Payments
In the most fiercely competitive housing markets, potential buyers must commit substantial funds, often combined with a few prayers, to enhance their offers’ attractiveness to sellers. They must also contend with all-cash buyers and navigate bidding wars. Nonetheless, not every market imposes such a steep entry barrier, especially in the midst of the current real estate slowdown. In select markets, buyers can secure prime real estate without a significant upfront cash outlay.
Identifying High and Low Down Payment Markets
Realtor.com set out to identify real estate markets where buyers make substantial and minimal down payments, measured as a percentage of the home sale price. A common guideline suggests that buyers aim to provide at least a 20% down payment, which allows them to avoid monthly private mortgage insurance premiums. For the median-priced home, standing at $429,500 according to Realtor.com data from September, this equates to $85,900.
“When prices are rising much faster than incomes, it becomes challenging to save more for a down payment,” explains Sean Moss, Executive Vice President of Product and Operations at Down Payment Resource. “The goalpost keeps moving.”
Factors Influencing Down Payments
Buyers often need to contribute more significant down payments in competitive, higher-priced markets and in popular vacation and retirement destinations. Retirees can often sell their existing homes and use the proceeds to purchase their forever homes, avoiding the need for a larger loan with higher mortgage rates. In contrast, markets near military installations often feature lower down payments. Active service members and veterans can take advantage of 0% down mortgages offered through the U.S. Department of Veterans Affairs. Furthermore, these loans usually offer lower mortgage rates compared to 30-year fixed-rate loans.
Changing Trends in Down Payments
The good news for buyers is that down payments have decreased over the past year, coinciding with a less competitive housing market. In the third quarter of this year, buyers made average down payments of 13.8% of the sale price, down from 14.7% in the previous year, according to a Realtor.com analysis of data from real estate data firm Optimal Blue.
Exploring Financing Options
What many buyers may not be aware of is the availability of low and no down payment loans, along with financial assistance programs. For instance, VA loans and U.S. Department of Agriculture loans do not require a down payment. Federal Housing Administration loans only require a minimum 3.5% down payment. Additionally, down payment assistance is available for those who struggle to accumulate these funds.
Availability of Down Payment Assistance
In 2022, approximately 53.5% of mortgages in the 10 largest metropolitan areas were eligible for assistance, according to Down Payment Resource. These borrowers were eligible for about $18,144 in down payment funds, which could also be used to cover closing costs and reduce mortgage rates.
Analyzing Down Payments in Different Markets
To identify the places with the highest and lowest down payments, we analyzed data from Optimal Blue. Our analysis focused on average down payments as a percentage of the home sale price in the third quarter for the 150 largest metropolitan areas, ensuring geographic diversity by including only one metro per state.
Cities Where Homebuyers Are Making the Largest Down Payments
1. Santa Rosa, CA
- Average down payment as a percentage of the home sale price: 25%
- Median down payment: $147,550
- Median home list price in September: $1,070,990
Santa Rosa, situated an hour north of San Francisco in Sonoma County’s wine country, stands as the most expensive metro on our list by a considerable margin. Had we not limited our analysis to one metro per state, California’s high-priced housing markets would have claimed six of the top 10 spots.
The area attracts retirees, vacationers, and newcomers looking for a change of scenery. Many buyers are cashing out the equity from their previous homes in more expensive areas to fund their purchases, avoiding the need for a larger loan with higher mortgage rates. Although prices in Santa Rosa are relatively high, they remain more affordable compared to surrounding counties.
2. North Port, FL
- Average down payment as a percentage: 23.5%
- Median down payment: $81,853
- Median home list price: $525,000
North Port, located on Florida’s southwestern coast along the Gulf of Mexico, includes the city of Sarasota. Like Santa Rosa, it’s a hotspot for retirees and vacationers seeking secondary residences. When there is limited housing availability, competition can be fierce, often resulting in cash deals. Buyers often have the necessary funds from the sale of their previous homes, eliminating the need for a mortgage.
3. Fort Collins, CO
- Average down payment as a percentage: 23.2%
- Median down payment: $105,533
- Median home list price: $625,000
In recent years, Fort Collins has emerged as a slightly more affordable alternative to Denver, located an hour to the south. Founded as a military fort in 1864, Fort Collins has evolved into an outdoorsy community with a wealth of museums and art galleries. Although the housing market is less competitive than during the COVID-19 pandemic, there has been a significant increase in available homes. More sellers are reducing their prices.
4. Asheville, NC
- Average down payment as a percentage: 21.8%
- Median down payment: $63,733
- Median home list price: $600,000
Asheville, a vibrant city in the Blue Ridge Mountains, is known for its outdoor lifestyle and craft beer culture. It has long attracted artists, vacationers, and retirees. The area’s growing luxury real estate market is drawing wealthier buyers. Home list prices have surged over the past few years, with a 50% increase from September 2019 to September 2023. However, the limited supply of homes has led to higher down payments.
5. Boston, MA
- Average down payment as a percentage: 21%
- Median down payment: $108,654
- Median home list price: $849,000
Boston’s real estate market is characterized by high demand and limited inventory. The number of available properties in the metro decreased by 16.6% year-over-year in September, driving up prices as buyers compete for homes. In this competitive environment, putting down at least 20% is common practice. Higher down payments can help make monthly mortgage payments more manageable.
Cities Where Homebuyers Are Making the Smallest Down Payments
1. Killeen, TX
- Average down payment as a percentage: 5.3%
- Median down payment: $2,182
- Median home list price: $325,000
Killeen, located an hour north of Austin and southwest of Waco, is home to Fort Cavazos, formerly called Fort Hood. It’s the largest military base in Texas, housing over 53,000 soldiers and their families. Many area buyers are active service members or veterans who qualify for VA loans, eliminating the need for a down payment. The market in Killeen is less competitive, with more homes available and longer days on the market.
2. Fayetteville, NC
- Average down payment as a percentage: 5.9%
- Median down payment: $2,779
- Median home list price: $330,000
Fayetteville, another military town, hosts over 50,000 soldiers stationed at Fort Liberty (formerly Fort Bragg). VA mortgages are popular among military buyers. However, the market has become highly competitive due to limited inventory, prompting even VA buyers to make smaller down payments and offer prices above the listing amount.
3. Shreveport, LA
- Average down payment as a percentage: 6.7%
- Median down payment: $4,587
- Median home list price: $245,000
Shreveport, located in northwest Louisiana and known for its riverboat casinos, also attracts military buyers. The city houses Barksdale Air Force Base and the Overton Brooks VA Medical Center. Buyers can find affordable homes, and many can still afford to put money down on their purchases.
4. Huntington, WV
- Average down payment as a percentage: 8.2%
- Median down payment: $4,802
- Median home list price: $179,900
Huntington, West Virginia’s second-largest city, has faced economic challenges stemming from manufacturing decline and the opioid crisis. This has led to significantly lower home prices compared to the national median. Many homes are more affordable, and buyers can find opportunities to put down smaller down payments.
5. Augusta, GA
- Average down payment as a percentage: 8.3%
- Median down payment: $5,586
- Median home list price: $302,430
Augusta, another military hub, sees homebuyers making low or no down payments. Fort Eisenhower, formerly known as Fort Gordon, is situated just southwest of the city and is designated as the U.S. Army Cyber Center of Excellence. The presence of VA buyers and first-time buyers using FHA loans is common. FHA loans typically require only a 3.5% down payment. However, inventory shortages often compel buyers to waive home inspections and appraisals to compete effectively.
In addition to these cities, Mobile, AL, with an average down payment of 8.5%, Virginia Beach, VA, at 8.7%, Gulfport, MS, at 8.9%, Lakeland, FL, at 9.4%, and Peoria, IL, at 10%, rounded out the top 10 metros with the lowest down payments.
🌶 Hot Take-aways
As the real estate landscape evolves, homebuyers have opportunities to secure their dream homes with down payments tailored to their financial situations. It’s crucial for potential buyers to explore available assistance programs and financing options, ensuring that the path to homeownership remains accessible for everyone.
