How much money you actually need for a home down payment

Despite the signs of a cold house market, the price of the house is still very high, resulting in a larger payment.

Last year, the average down payment in the nation’s 50 largest metros increased more than 35%, according to a LendingTree report, based on mortgage data. 30-year loan from January 1 to October 10, 2022.

While rising home prices and interest rates may push some buyers over the edge, those still in the market may have “deeper financial resources,” especially if they’re downsizing, he said. explains Keith Gumbinger, Vice President of HSH Loans.

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Here are the top five metros with the lowest wages.

In 2022, these five metros had the highest prepayments based on LendingTree loan data from January 1 to October 10, 2022.

1. San Jose, California: $142,006
2. San Francisco, California: $131,631
3. Los Angeles, California: $104,749
4. San Diego, California: $98,593
5. Seattle, Washington: $96,056

With higher average mortgage rates and higher annual household incomes, it’s no wonder these metros top the list. And these payments represent a large portion of the annual income.

“In general, the more you can get down, the lower your final costs will be,” Gumbinger said.

Bigger payments mean smaller loans, which “certainly can help offset the cost of higher interest rates to a certain extent,” he said.

Although some types of loans allow a minimum down payment of 3%, you will have to pay a loan insurance policy that is less than 20%, and you may find higher interest rates, said Gumbinger.

The average interest rate for a 30-year mortgage of $647,200 or less is still more than 7% for a loan with a 20% down payment.

“More is generally better because it helps lower your overall costs,” he adds.

In 2021, the average down payment is 13%, with nearly 4 in 10 using cash from a previous home sale, according to a 2022 report from the National Association of Realtors.

Despite softening demand, home prices are still “higher than they were two years ago,” with many buyers struggling to put 10% or 20% down, said Melissa Cohn, regional vice president. of William Raveis Mortgage.

The median home sales price was $454,900 during the third quarter of 2022, compared to $337,500 during the third quarter of 2020, according to Federal Reserve data.

Many buyers take advantage of lower down payment options, he said, such as 3% or 5% for conventional loans or 3.5% for Federal Housing Administration loans.

“With smaller payments, it’s more cost-effective in every way,” Cohn said. “But for a lot of people, it’s the only way they can get into their homes.”

Although it means higher interest rates and lower insurance premiums, homebuyers can reduce those costs in the future, he said. When interest rates drop, there may be a time for refinancing, and buyers may take out their mortgages when the home equity reaches 20%, Cohn said.