How Much Is the Average Homebuyer Putting Down on a House?
Whether you’re a first-time home buyer or an experienced house hunter, there are a few particular questions that seem to crop up no matter how well you think you know the housing market. One of those often-asked questions is, without a doubt: How much is the average homebuyer putting down on a house?
While the answer likely differs from case to case, there is some general knowledge and best practices that can turn this enigma into a simple and straightforward question. Here’s what you need to know regarding a typical down payment on a home.
Loan Products and Assistance Programs That Affect Down Payments
The National Association of Realtors has indicated that the average down payment for home buyers overall was 13%. For first time home buyers, this drops to 7%. While this is a far cry from the very conservative 20% rule of thumb, recent surveys show that up to 40% of potential home buyers believe that a 20% down payment is the minimum down payment required. It’s important to understand just how many products and programs are out there for individuals looking to put less down on a home.
- VA Loans are an excellent way for those who have served our country to allow the mortgage industry to return the favor in some small way. A qualified veteran can purchase a home with NO down payment at all. VA loans come with competitive fixed interest rates, & the veteran is not charged monthly PMI.
- State bond Loans such as a MHSDA loan offers assistance primarily to first time home buyers. This type of loan can reduce the necessary cash needed up front to a very small number. This loan is coupled with a traditional mortgage but provides financial assistance to cover the down payment & closing costs.
- The USDA Rural Development Loan Program (RD Loan) allows for 100% financing in qualified areas to qualified home buyers. The RD loan provides an affordable mortgage option to those who qualify, based on geographical location and income level. The RD loan is a 30-year-fixed-rate mortgage, and allows home buyers the opportunity to purchase a home with 0% down.
Fees You May Be Forgetting
The funds needed at the time of closing on a new home will fall into three general categories. The first category is of course, the down payment. The second is the loan closing costs. These are expenses necessary to make the financing happen, such as the appraisal of the new home & title expense. The last category is called “prepaid expenses”, which are costs associated with real estate taxes, insurance, & other incidental costs related to the purchase of the home. The costs are susceptible to regional and transactional variances and should be reviewed on a case-by-case basis by you and your mortgage provider.
Internal Factors Affecting Your Down Payment
It is important for a home buyer to look at their overall financial picture when considering the amount to put down on a home. While a person may have the ability to make a large down payment, this may not always be the best choice. For instance, if a home buyer has other high interest financing outstanding at the time of a home purchase, it may make more financial sense to make a smaller down payment & use some remaining funds to pay off or pay down the other debt. It is also important to maintain some cash reserves for emergencies after the home purchase.
The Best Way to Determine What You Should Put Down
The best course of action to determine how much you should be putting down is to start a dialogue with your loan officer early on in the home buying process. Before setting your sights on a specific home or neighborhood, talk with your loan officer to determine just how much you can afford. Together, we can accurately determine what down payment you should be making based off of personal factors like:
- Desired lifestyle (i.e. vacations, entertainment, experiences)
- Previously incurred debts
- Home preferences (i.e. size, location, style)
Looking for more insight in your home buying journey? I would love the opportunity to chat with you regardless of where you are in the process. Contact me today!
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