These metros are homebuyers' most popular choice for down payment. Here's how much money you really need

Oct 29, 2022

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Despite signs that the housing market is cooling, home prices remain high. This results in larger down payments.

LendingTree's report based on 30-year fixed rates mortgage data, from Jan. 1 to Oct. 10, 2022, shows that average down payments in 50 major metros of the country have increased by more then 35% over the past one year.

High home prices and high interest rates can make it difficult for some buyers to purchase, but there are other options available, such as downsizing. Keith Gumbinger (vice president of HSH mortgage website) explained that those who remain in the market could have "deeper resource," especially if they're looking to downsize.

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

Five metros have the highest downpayments

Based on LendingTree's mortgage data, these five cities had the highest downpayments for 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

These metros had higher average annual household incomes and mortgages than the rest, so it's not surprising that they topped the list. This is because the down payments account for a large portion of yearly earnings.

How a bigger down payment lowers mortgage costs

Gumbinger stated that "In general, the higher your net worth, the lower your final costs will be."

A higher down payment will result in a smaller mortgage. This can "certainly assist offset the cost associated with rising interest rates," he stated.

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.

A 30-year fixed rate mortgage at a 6.47,200-dollar average is higher than 7% for loans that have a 20% downpayment.

"More than one is generally better, because it lowers your overall costs," he said.

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.

Many buyers are unable to reduce 20% because of high prices

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.

Federal Reserve data shows that the median home sale price in the third quarter 2022 was $454,900, while it was $337,500 in the third quarter 2020.

She explained that many buyers use lower down payment options such as 3%, 5% or 5% for conventional mortgages or 3.55% for Federal Housing Administration loans.

Cohn said, "With a lower downpayment, it's much more expensive every other way." "But for many people, it's the only way they can afford to get into their home."

Her belief is that home buyers will be able reduce their mortgage insurance and interest rates by paying smaller down payments. Cohn indicated that when interest rates drop, buyers may be able refinance and may get rid of mortgage insurance after they reach 20% equity.

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