How Much is the Average Down Payment on a House?
If you are thinking about purchasing a house, there are a lot of steps you need to complete. One of the most important steps is to accumulate a down payment.
A down payment is the amount of money that you have to put towards the principal value of the house at closing. Learn more about the typical house down payment below, and be sure to take a look at a few of the most important tips for first-time home buyers. Then, do not hesitate to reach out to a professional if you have questions about the typical mortgage down payment.
What is a down payment on a house?
Before taking a closer look at the standard down payment on a house, it is important to discuss what this is. It is highly unusual for a lender to provide you with a loan for the complete purchase price of the house. That would mean that the lender is taking on a significant amount of risk. Therefore, the lender will typically require you to put a down payment on the house, increasing the chances that if you sell your house, you will make enough money to pay off the remainder of the mortgage.
Essentially, the down payment is the amount of money that you will apply toward the purchase price of the house at closing. If you were required to pay for the house in cash, it would be nearly impossible for a lot of people to purchase a house.
There are numerous options available if you are interested in buying a house. For example, there are some situations where you might only have to put down a few thousand dollars. Then, there are other cases where you might have to put down tens of thousands of dollars. That is why it is critical to work with a professional who can help you figure out what down payment is right for your needs.
What are the different factors that impact the average down payment?
So, how much are down payments on houses? There are a lot of factors that affect the payment amount. Everyone is in a slightly different situation, so it is not unusual for down payment requirements to vary as well.
The down payment requirement will vary depending on the purchase price of the house, your age, the loan option you select, and where you are located.
Your age could play a significant role in the down payment you are required to put down on your house. It isn’t so much your age that plays a role, but it is your property ownership history. For example, if you are purchasing a house for the first time, you might qualify for a loan from the FHA for only 3.5% down. Or, if you have a history of serving in the military, you might be able to take out a loan for 0% down. There are specific government programs in place designed to make it easier for people to purchase a house. It is beneficial to look at the differences between FHA vs. VA loans.
If you are not a first-time home buyer, you may have a difficult time getting a lender to give you a loan for less than 20% down. This means that if you are purchasing a property for $500,000, you could be required to put forth $100,000 at the closing table. Ideally, you would have gotten this cash when you sold your last property.
Importantly, you might be able to purchase a property for less than 20% down. On the other hand, there are specific rules and regulations in place that lenders have to follow. If you decide to purchase a property for less than 20% down, then you might be required to pay private mortgage insurance. This is an insurance policy that allows the lender to recoup his or her losses if you default on your mortgage. When you reach 20% equity in your home, you should be able to discharge the mortgage insurance policy, which can help you save money.
Because there are a lot of factors involved, the average down payment can vary significantly depending on how old you are, your employment history, and your property ownership history. If you are interested in learning more about how your age might play a role in the amount of money you are required to put down for a house, you may want to reach out to a professional who can help you.
If you have owned property in the past, you might want to put down more money. You could be required to pay capital gains taxes on the proceeds from the sale of your home, but you might be able to avoid those capital gains taxes if you are able to purchase another property shortly after you sell your first one. If you are interested in learning more about how capital gains taxes work with regard to the sale of property, you need to reach out to an accountant who can help you.
As a result, this means that people who are older tend to put down more money than people who are younger. First-time home buyers who are in their twenties often put down as little as 6%. People who are in their thirties or forties might put down between 10 and 15%. People who are older generally put down 20% or more.
The average down payment can vary depending on your location. Property values vary significantly from place to place, which means that the average down payment can vary as well. For example, if you are asked to put down 3.5% for your first house, that amount of money can vary significantly depending on where you are located. For example, in California, where property values are notoriously high, that down payment could be $27,000 (on average). This also means that if you need to put down 20%, you are putting down more than $150,000.
In contrast, if you are interested in purchasing a house in Texas, where property values are significantly less, a 3.5% down payment is usually $6,000, on average. This means that a down payment of 20% is closer to $35,000. It is clear that Arkansas is significantly more affordable.
Of course, there are plenty of states that fall in between these two extremes. It is important to take a look at the average property value in your area, particularly when you are trying to figure out what your monthly payment might be for various fixed-rate mortgages and how much money you will have to put down for your house.
Of course, there are expensive and inexpensive properties in just about every location, but it is helpful to understand what average property values are like in the area. Remember that your home is an investment, so it is also important to understand what property values have done in the area historically. That way, you can put yourself in the best position possible to make money with your real estate investment.
What is the typical house down payment?
It is very difficult to figure out what the absolute average is, as it runs the spectrum. There are some people who do not put any money down, and there are other people who pay for the house in cash.
A few important points to keep in mind include:
- The average down payment for someone who is purchasing a home for the first time is approximately 6%.
- The average down payment across the board, for everyone, is about 13%.
- The average down payment on a house for everyone, in terms of dollars, is between $10,000 and $15,000.
A lot of factors will play a role in how much money someone has to put down. If you are buying a home for the first time, it can take you a long time to save up this kind of money. Therefore, there are programs in place that allow you to purchase a house for less than 20% down. If you are purchasing a home for the second or third time, then you may be required to put 20% down, which means that you may want to use cash from the sale of your prior house to cover the cost.
Because of how difficult it can be for someone to save up enough money to buy a house, it is helpful to take a look at a few tips that can make the process easier.
Tips to save money for a down payment on a home
If you are interested in saving money to purchase a house, particularly if you are purchasing one for the first time, there are several important tips you need to keep in mind.
1. Make a budget
First, you need to make sure that you have a budget in mind and a timeline for when you are interested in purchasing your first home. Then, you need to do the math to figure out how much money you need to save every month. This will make it easier for you to plan the rest of your budget around that number. Always have a budget in mind. Include how much money you will spend on rent, how much money you will spend going out to eat, and any recurring monthly expenses you might have, such as utilities. Then, figure out how much money you can reasonably save every month to put towards your down payment.
2. Save before you spend
One of the most common reasons why people feel like they never get anywhere with their savings goals is that they spend everything they have to during the month. Then, they save what is left over. If this is the approach you have, there will not be anything left at the end of the month. That is why it is helpful to move the money into a savings account at the beginning of the month. Then, live off of what is left. You might be surprised at just how much money you can save if you take this approach.
3. Pay down your existing debt
You may realize that you are having a hard time saving money because you have a lot of other loans to pay off first. Therefore, it may be helpful for you to pay down your existing debt before you start saving up money for a down payment. If you have a car loan, you may want to increase your monthly payments to pay off that loan more quickly. That way, you can free up additional cash that you can put towards your down payment.
4. Do not carry credit card debt
If you want to save up money for a down payment, you need to maximize your chances of being approved for a mortgage. If you carry credit card debt, it will be very difficult for you to convince a mortgage company to give you money for a home loan. Do your best to avoid carrying credit card debt. Even though there is a minimum payment you are required to make, try to pay off the balance in full every month. That way, you can avoid carrying a balance on your credit card, where the interest will make it nearly impossible for you to save up money for a down payment.
5. Cut your spending
From time to time, it is important to take a look at your budget to make sure you are on track. There are ways you can cut your unnecessary spending. For example, you may want to stop buying trendy clothes every month. Or, you may want to limit the amount of money you spend on entertainment, such as video games and movies. You may also want to cook more at home instead of going out to eat every week. By cutting some unnecessary spending, you may be able to put an additional $100 or $200 toward your down payment every month.
6. Assess programs available for first-time home buyers
If you are purchasing a home for the first time, you may want to take a look at some of the programs available that can help you. For example, your local or state government may have grants available that you can tap into. That way, you can access the money that you can put toward your down payment. If you come from a disadvantaged background, you may have an easier time qualifying for these programs. There might be programs available from the federal government that can help you as well. Consider reaching out to a real estate expert who can point you in the right direction.
7. Create a separate savings account
A lot of people struggle to keep up the motivation if they are interested in saving up money for a house. You need to watch yourself get closer to the goal. Therefore, you may want to consider opening a separate savings account into which you will deposit the money that will be used for your down payment. There are a lot of banks that will not charge you a fee to open another savings account, particularly if you already have an account with them. Therefore, you may want to open a separate savings account and label it. That way, you can clearly see yourself getting closer to your goal.
8. Consider getting a side hustle
The easiest way to save up money for your house is to increase your income. However, it can be very difficult for someone to simply start making more money. One way is to get a side hustle. You may want to get another job where you can work on the side with some flexible hours. You might be surprised at how much extra money you can bring in every month if you are willing to get another job. Look at some of the side hustles that fall into your wheelhouse. You might be able to make extra money that makes it easier for you to save up cash.
9. Check your credit report
The amount of money you need to save up for your down payment varies depending on where you are located and your credit history. If you want to maximize your chances of getting approved for a mortgage, you need to check your credit report ahead of time. That way, you understand what your credit score is, and you can correct any inaccuracies that could be present in your credit report. If you want to increase your credit score, make sure you pay all of your bills on time. With a higher credit score, you might be able to get a home loan with a lower down payment.
10. Monitor property values in your area
If you know where you want to buy a house, you need to keep an eye on your property values. The amount of money you need to save up for a down payment can change depending on real estate values in the local area. You may find that property values are going up, which means that you may need to save up more money. Or, you may find that property values are dropping in a certain area, which could make some locations more affordable.
If you keep these tips in mind, you should be able to increase your chances of saving up enough money for a down payment on a house. Do not hesitate to reach out to an expert who can help you maximize your savings.
Next steps: work with Griffin Funding
Clearly, the average amount of money you need to save up for a down payment on a house can vary depending on your location, age, and financial history. Because there are so many moving parts involved, it is helpful to work with a professional who can help you make your home ownership dreams come true. That is where we can help you.
At Griffin Funding, we have worked with homeowners of all backgrounds. We understand that the prospect of saving up enough money for a down payment on a house can be daunting, but we believe that we can help you accomplish your goals. Some of the reasons why you should work with us include:
- We have connections with a wide variety of professionals in the area, and we can use them to make the process easier for you.
- We prioritize our customer service, and we are always responsive to your questions and concerns. We know that there is a lot of jargon in the field, and we will translate it for you, making it easier for you to figure out what is right for your needs.
- We are open, honest, and transparent about all of our services. We will clearly explain what we are doing every step of the way and why we believe it is important to help you accomplish your goals.
- We always put the needs of our clients ahead of our own, and we will do the same for you. We have a sterling reputation in the industry because of how we treat our clients.
We know that everyone is in a slightly different situation. That is why we offer a wide variety of home loan options with competitive interest rates. We are here to make the process more affordable for you, and we will do everything we can to make that happen. If you are interested in learning more about how one of our lenders can help you accomplish your homeownership dreams, contact us today! We are always available to assist you, and we can work with you personally to find the right mortgage to meet your needs. Reach out to us to speak to a member of our team, and let us help you purchase your house.
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