Homebuyer down payments skyrocket amid rising costs

One payment choice also surges as buyers fight high mortgage rates

Homebuyer down payments skyrocket amid rising costs

Buyers are now putting down 15% of the purchase price, compared to 10% a year ago, with the median down payment surging to $55,640 in February, according to a new Redfin report.

That’s up 24.1% from $44,850 a year ago, the largest annual jump since April 2022.

“Homebuyers are doing whatever they can to pull together a large down payment to lower their monthly payments moving forward,” said Rachel Riva, a Redfin real estate agent in Miami. “The smallest down payment I’ve seen recently is 25%. I had one client who put down 40%.”

Why down payments are rising

Several factors are driving this trend. Rising home prices (up 6.6% year-over-year in February) naturally lead to larger down payments. However, the primary motivation seems to be the ongoing impact of high mortgage rates.

By taking out a smaller loan, buyers reduce their monthly interest payments. For example, on today’s median-priced US home ($374,500), a 15% down payment lowers the monthly payment by roughly $132 compared to a 10% down payment.

Cash purchases on the rise

Mirroring the down payment trend, over one-third (34.5%) of US home purchases in February were made entirely with cash. This is just below the decade-high of 34.8% and significantly above the 2013 record of 38%. Like larger down payments, cash purchases offer a way to circumvent the burden of high mortgage rates.

First-time buyers are particularly affected by the competitive market, as they often lack the equity from previous home sales to bolster their down payments. Many first-time buyers are competing against all-cash offers, which sellers favor.

“Most buyers, though, can’t afford to pay in cash, and many can’t afford a big down payment either,” Redfin said in the report. “First-time buyers, especially, are at a disadvantage in today’s market. That’s because they don’t have equity from the sale of a previous home to bolster their down payments and are often competing against all-cash offers, which sellers tend to favor. Many all-cash offers come from investors, who were buying up more than one-quarter of the country’s low-priced homes as of the end of last year.”

Read next: Can homebuyers afford down payments without help from family?

“High mortgage rates are widening the wealth gap between people of different races, generations and income levels,” added Chen Zhao, economics research lead at Redfin. “They’ve added fuel to the fire lit by surging home prices during the pandemic, creating a reality where, in many places, wealthy Americans are the only ones who can afford to buy homes. Meanwhile, people who are priced out of homeownership are missing out on a major wealth-building opportunity, which could have financial implications for their children and even their children’s children.”

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