What This Means For Home Affordability – Forbes Advisor – Technologist

There’s a glimmer of good news for would-be home buyers who have been shut out of the housing market due to affordability challenges. On the national level, the median down payment came in at an average of 14.5% and a median amount of $30,300, according to Realtor.com’s bi-annual down payment report.

This was a drop from the record peak of the second quarter of 2024, which came in at 14.9% and a median amount of $32,700, respectively. It’s also a decrease compared to the same time last year (14.7% and $30,400, respectively).

Will Down Payments Trend Down Further?

Despite this welcome dip, down payments nationwide were still at their third-highest level. Notably, the average $30,300 down payment in the third quarter of 2024 was over 117% higher than the $14,000 down payment buyers put down in the same quarter in 2019.

Though this latest softening is a positive step, it remains uncertain whether it represents only a seasonal pattern or if improvements will continue.

“It is too early to tell if this is the beginning of a lasting downward trend in down payments,” said Hannah Jones, senior economic research analyst at Realtor.com, in the report. Jones points out that even as down payments have declined and may trend down further amid lower demand, they continue to hover at record-high levels.

Mortgage rate declines might also bring more buyers back into the market, according to Jones. This could reignite competition and push down payment costs back up if the available housing supply once again fails to meet demand. In the meantime, national inventory has steadily climbed throughout 2024, rising more than 41% by September compared to January levels, according to Realtor.com data.

States With the Highest and Lowest Down Payments

Many real estate industry experts point out that the housing market is local. Consequently, home prices, for-sale inventory, demand and the level of competition vary, impacting how much individual buyers put down on a home.

Although down payments have dipped somewhat on a national level, this downward movement is far from universal. Namely, down payments as a percentage of the purchase price fell in only 24 states in the third quarter of 2024 compared to the same period a year ago, and they dropped in only 21 states in dollar amounts.

States With Highest Down Payment Increases

On a regional level, the Northeast and Midwest have grown popular with prospective buyers. While Northeast states tend to be more expensive and draw buyers with higher incomes, some Midwest markets—such as Ohio and Wisconsin—boast relatively affordable prices. This heightened interest has driven competition, resulting in increased home prices and down payment growth.

Here are the five states with the largest year-over-year (YOY) increases in down payment amounts between the third quarters of 2023 and 2024.

States With Highest Down Payment Decreases

Meanwhile, pandemic hotspots like Florida, Montana and Texas have cooled off amid softening demand, reduced competition, declining prices and rising housing stock. Here are the five states with the largest YOY decreases in typical down payments between the third quarters of 2023 and 2024.

Why Making a Large Down Payment Can Be a Good Idea

Making a larger down payment can go a long way toward buying a home and making it more affordable in the long run. For starters, the more you put down, the less you’ll need to borrow—resulting in lower monthly payments and less interest paid over the life of the loan.

Moreover, higher down payments often unlock better loan options and more favorable interest rates from lenders. In a competitive housing market, a higher down payment is also more likely to sway sellers to choose your offer over others.

Tips To Save for a Down Payment

If homeownership is in your future and you want to maximize your down payment, here are some tips to help you save up and stay ahead of the competition.

• Establish budget goals and a timeline. Use a budgeting app or a simple spreadsheet to get a complete picture of your financial situation and the time it will take to reach your down payment savings goal.
• Trim your current expenses. Review your monthly spending closely to identify areas for improvement. For example, swap dining out for eating at home, take day trips instead of vacations and cancel subscriptions or memberships you don’t use. Even small cutbacks in multiple areas can add up to solid savings over time.
• Set up a specific savings account. Set aside a portion of your income in a separate savings account devoted to a down payment. Using a high-yield savings account can help you earn more interest than you would with a standard savings account. Consider saving a portion of any monetary increases, such as bonuses or unexpected windfalls. You can also set up automatic transfers from scheduled deposits (such as paychecks) to make it easier.
• Sell your belongings. Do a “Marie Kondo” of your home by selling clothes, accessories, jewelry, home decor and other items that no longer spark joy. You can use online marketplaces to turn these unused items into extra cash for your down payment.
• Reduce or eliminate your monthly rent. Paying rent can make it difficult to save money. See if you can reduce this expense by getting a roommate, moving to a smaller space or temporarily moving in with family to free up more cash for your future home.
• Start a side gig. There are countless ways to earn extra money, even if you work full time. Many side hustles let you create your own schedule, and you might be able to work remotely.
• Research down payment assistance programs. Many state and local governments have down payment assistance programs that provide grants or loans. See if you qualify for any programs that can help cover some or all of your down payment costs.