Today’s homebuyers are anteing up.
Amid rising home prices, buyers are offering about twice as much cash for down payments as they did just two years ago in their quest to have their offer accepted, according to a recent report from Realtor.com®. They kicked in an average $28,000 down payment in the first quarter of this year—compared with $14,000 in the first quarter of 2020.
The percentage buyers contributed also rose during the COVID-19 pandemic along with home prices. The down payments grew from 10.9% of the purchase price of a buyer’s primary home in the first quarter of 2020 to 13.1% in the first quarter of 2022. (Median home list prices surged 26.1% over the same period.)
“During the pandemic, people were not spending as much on entertainment and travel and received stimulus payments, which enabled them to put more cash down on homes,” says Hannah Jones, Realtor.com economic data analyst and author of the report.
Buyers are increasing their down payments in this brutally competitive market at least partly in an effort to prove their financial worthiness to sellers. The more they contribute, the more confident sellers generally are that their mortgages will be approved. But the pandemic shutdowns and stimulus checks also helped them come up with more cash to spend upfront, which helps lower their monthly mortgage costs.
The average down payment grows to 14.5% of sale prices when factoring in vacation homes and investment properties. These buyers are generally wealthier and have more disposable income than, say, younger, first-time homebuyers.
Investors were able to put down nearly twice as much as buyers purchasing homes to live in. Their down payments were about 25.6% of the purchase price in the first quarter of the year.
First-time homebuyers are struggling to save for a down payment
First-time homebuyers were more likely to have lower down payments as coming up with that large of a sum is one of the biggest obstacles many folks face. About 41% of first-time buyers planned to put down less than 10%, according to a Realtor.com survey from the fall.
As they were more likely to be younger and earlier in their careers, they often haven’t had as long to save and might not make as much as they will later. Many also grapple with student loan and other debts, which limit how much they can sock away.
“Prices have grown faster than many first-time buyers have been able to save,” says Jones.
Where down payments are growing the most
More affordable real estate markets experienced the fastest growth in the size of down payments. That might be due to buyers coming in from more expensive parts of the country in search of cheaper homes.
Many Florida metropolitan areas also saw big jumps in how much buyers chipped in. In Cape Coral, in the southwestern swath of the state, down payment sizes soared by 174.7% from the first quarter of 2021 to the first quarter of 2022. Buyers in the metro kicked in about $42,000 toward their home purchases.
However, the biggest down payments were in the priciest parts of the country where buyers generally made more money. Buyers in Silicon Valley’s San Jose, CA, provided about 23.7% of the price of their homes—which translated to a whopping $290,000.
“It can be a good way to win a bidding war,” Jones says.