How Much Money Do You Need to Put Down to Buy a Median-Priced Home?
by Christy Bieber | Updated Aug. 13, 2021 - First published on Aug. 10, 2021
The amount may surprise you.
In June, the median existing home price in the U.S. hit $363,300, according to the National Association of Realtors. This is a record high, and it reflects a 23.4% price increase from the median cost of an existing home a year ago.
If you're in the market for a house, you may be wondering how much money you need to put down to afford one. Here's what you need to know.
This is the down payment you need to buy a median-priced home
In an ideal situation, every home buyer would make a 20% down payment. With the median home price of $363,300, that would mean you would need to save up $72,660 to put a down payment on a typical home in the United States.
That's a lot of money. But there are a lot of benefits to making a 20% down payment including:
- Avoiding private mortgage insurance (PMI): PMI is insurance borrowers must pay if they make smaller down payments to protect lenders in case of foreclosure. (A small down payment increases the risk the lender wouldn't get enough money from foreclosure to pay off the mortgage.)
- A wider choice of lenders: More lenders are willing to work with borrowers who put 20% down.
- A lower mortgage rate: A large down payment often makes it possible to qualify for a loan at a lower mortgage rate due to the reduced risk of the loan to the lender.
- Less chance of ending up underwater: You don't want to owe more than your home is worth. That can happen if you make a small down payment and property values subsequently decline. If that occurs, you couldn't sell your house for enough to pay off your loan. You'd be trapped unless you could bring more money to the table or your lender agreed to a credit-damaging short sale in which you pay back less than the full amount.
What's the minimum down payment for a median-priced home?
Now, if you can't quite come up with $72,660 to buy a median-priced home, don't despair. It is definitely possible to buy a house with less than 20% down, and many buyers end up doing that.
In fact, there are options, such as VA loans, that require no down payment at all. Other government-backed loans, such as FHA loans, require just 3.5% down. So you could get into a median-priced property with a down payment of just $12,715.50 if you got an FHA loan.
For well-qualified borrowers, conventional lenders (those not backed by the government) may even allow a 3% down payment, which would bring that required amount down even further to $10,899.00.
If you take advantage of these low down payment options, you may incur more upfront fees and you'll pay more for your loan over time due to the larger loan balance and because your interest rate will likely be higher. You will also have a narrower choice of lenders since not all financial institutions offer FHA or VA loans, or 3%-down loans.
Still, if you can't afford to pay $72,660 to get into a median-priced home, it's nice to know you do have options -- and saving up $10,899 is definitely more within reach.
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