For those planning to buy a home this spring, are you prepared for the down payment?

As we approach the spring season, demand for homes is steadily increasing. Recent reports indicate that the down payment required for buying a home has reached an all-time high. So, how much should you be prepared to pay, and what trends are shaping this situation? Let’s take a closer look.

Average Down Payment Surpasses $30,000 in Q4 2024

According to a recent report from Realtor.com, during the fourth quarter of 2024 (October to December), the average down payment for homebuyers was 14.4% of the purchase price, or $30,250. This is approximately $1,000 higher than the same period last year and represents the highest amount recorded for a fourth quarter.

At one point during Q2 2024, the down payment percentage peaked at 15.1%, with the dollar amount reaching $32,700, but it has slightly decreased since then. Nevertheless, 2024 recorded the highest down payment percentage and amount since 2013.

Why Have Down Payments Increased?

Hannah Jones, Chief Economist at Realtor.com, attributes the increase in down payments to rising mortgage interest rates and home prices. Higher-income buyers, who have more financial flexibility, are entering the market with larger down payments. On the other hand, first-time buyers and lower-income individuals are still facing difficulties entering the housing market.

Additionally, many buyers are opting to make larger down payments to reduce their interest burden. By paying more upfront, they lower the loan amount, which in turn reduces the interest they have to pay over time.

Decrease in Down Payments for Second Homes and Investment Properties

Meanwhile, down payment percentages for second homes and investment properties have slightly decreased:

• Investment properties: 27.4% (a decrease of 0.6 percentage points from last year)

• Second homes: 28% (a decrease of 0.8 percentage points from last year)

However, the down payment amounts for these properties are still more than 2.5 times higher than for primary homes.

Government Assistance Program Users Seeing a Slight Increase in Down Payments

For buyers using government-backed programs like FHA or VA loans, down payments are generally lower. In Q4 2024, the 30th percentile of "small down payments" was $8,200, which represents a 6.5% increase from the previous year. Compared to $4,600 in 2019, this is nearly double the amount.

What Does the Future Hold for Down Payments?

Experts predict that it is unlikely that down payments will decrease significantly in the near future. While interest rates have slightly decreased from above 7% to the high 6% range, they are still considered burdensome for many prospective buyers.

As a result, in 2024, sales of homes priced below $750,000 have decreased, while sales of higher-priced homes have increased by 7.4%. This suggests that high-income buyers are leading the market, which naturally pushes both average home prices and down payments higher.

Hannah Jones explains, “The housing market is currently driven by buyers with relatively higher purchasing power, and down payments are expected to remain high for the time being.”

Conclusion

• The average down payment for Q4 2024 was $30,250, marking an all-time high.

• Increased participation from high-income buyers has been driving up the average down payment amount.

• However, the number of buyers utilizing government assistance programs with smaller down payments is steadily rising.

• For anyone considering purchasing a home, having sufficient funds for a down payment will be crucial.

If you're thinking of buying a home, it’s advisable to consult with local experts to strategize according to your personal situation.