How much money you actually need for a home down payment

Despite signs of a cooling housing market, home prices are still relatively high, resulting in bigger down payments. 

Over the past year, average down payments in the country’s 50 biggest metros have grown by more than 35%, according to a LendingTree report, based on 30-year fixed-rate mortgage data from Jan. 1 through Oct. 10, 2022.

While high home prices and interest rates may push some buyers to the sidelines, those still in the market may have “deeper resources,” particularly if they’re downsizing, explained Keith Gumbinger, vice president of mortgage website HSH.

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Here are the top five metros with the largest down payments.

In 2022, these five metros have had the highest down payments based on LendingTree mortgage data from from Jan. 1 through Oct. 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 mortgages and annual household incomes, it’s not surprising these metros topped the list. And these down payments represent a large share of yearly earnings.

“In general, the more you can afford to put down, the lower your ultimate costs are going to be,” said Gumbinger.

A larger down payment means a smaller mortgage, which can “certainly help offset the cost of rising interest rates to a degree,” he said.

While certain kinds of mortgages allow down payments as low as 3%, you’ll have to pay mortgage insurance on loans with less than 20% down, and you may see higher interest rates, Gumbinger said.

The average interest rate for 30-year fixed-rate mortgages of $647,200 or less is still above 7% for loans with a 20% down payment.

“More is generally better because that helps to lower your costs overall,” he added.

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

Despite softening demand, home prices are still “significantly higher than two years ago,” with many buyers struggling to put 10% or 20% down, said Melissa Cohn, regional vice president at 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, she said, such as 3% or 5% for conventional mortgages or 3.5% for Federal Housing Administration loans.

“With a smaller down payment, it’s more expensive every which way,” Cohn said. “But for many people, it’s the only way they can afford to get into their home.” 

While smaller down payments mean higher interest rates and mortgage insurance, home buyers may reduce these expenses in the future, she said. When interest rates drop, there may be a chance to refinance, and buyers may remove mortgage insurance once they reach 20% equity in the home, Cohn said.