Real EstateAgent

Down payment size continues to grow

Nationwide, the median down payment rose to $28,000 in Q1, but in some cities it's much higher

As home prices have increased exponentially over the past two years, so has the size and dollar amount of down payments, according to a study by Realtor.com published on Wednesday.

Through survey data collected during the fall of 2021, Realtor.com found that 45% of all homebuyers planned to pay 20% or less as a down payment, with 41% of first-time buyers planning to put less than 10% down, compared to 26% of all buyers. This difference reflects that saving for a down payment is often the biggest hurdle for first-time buyers.

Nationwide, the study found that the typical down payment for a primary residence was up from 12.3% in 2021 to 13.1% during the first quarter of 2022. As a dollar amount, the nationwide median down payment rose from $22,000 in 2021 to $28,000 in Q1 2022.Overall, down payments on primary residences lag behind second home and investment properties, which had typical down payments of 23.1% and 25.6% in Q1 2022, respectively.

Realtor.com attributes part of the increase in down payment size to homebuyers spending less on travel and entertainment during the pandemic, which led to an increase in savings in 2020 and 2021.

By state, Idaho had the largest down payment growth from 2020 to 2021 with an increase of 3.8 percentage points to 19.5%. During the first quarter of 2022, 11.9% of all views traffic on Realtor.com to Boise City was from the D.C. area, and another 44.5% of views traffic was from pricey Western region markets such as Los Angeles, San Francisco, Seattle, and Portland, according to the study.

Vermont had the second highest down payment growth from 2020 to 2021 with an increase of 2.8 percentage points to 13.9%, while New Hampshire came in third with an increase of 2.5 percentage points to 15.6%.

When looking at down payment growth by dollar amount, Realtor.com found that Montana had the largest down payment growth — up by $35,000 from Q1 2021 to Q1 2022 to $115,000. Wyoming saw the second-largest down payment growth with a year-over-year increase of $32,000 to $78,000, while New York was third with a $31,000 increase to $117,000.

Five of the top-10 metro areas that saw the largest increases in down payment by dollar amount were in Florida, including Cape Coral-Fort Myers, Lakeland-Winter Haven, Jacksonville, Daytona Beach, and Tampa. Cape Coral saw the largest increase in down payment, jumping 174.7% between Q1 2021 and Q1 2022, from $15,000 to $42,000, while Lakeland-Winter Haven recorded a 151.0% annual increase to $13,000, and Jacksonville saw a 121.8% increase to $30,000.

Realtor.com attributed the growth in Florida down payments to homebuyers relocating to those areas from pricier metros. According to the study, buyers in Miami, Chicago, New York and Washington D.C. comprised 29.9% of the Realtor.com traffic to listings in the Cape Coral-Fort Myers, Florida, metro area.

During the first quarter of 2022, the metro area with the highest down payments were San Jose-Sunnyvale-Santa Clara, California at $290,000, San Francisco-Oakland-Hayward, California, at $218,000 and Boise City, Idaho, at $95,000.

Looking ahead to the rest of the year, Realtor.com believes down payment amounts will continue to grow. Large down payments have become a strong bargaining chip in competitive markets, as they signal to the seller that the buyer is more likely to be approved for a mortgage loan and can afford closing costs, so are less likely to fall out of contract.