What is the Typical Down Payment on a House?

typical down payment

Written by Catherine

June 5, 2020

The content on this site may contain affiliate links. Which means we may be compensated (at no cost to you). Please see our full disclosure policy for details. Thank you for your amazing support!

You + Sharing This = Awesome!

The reason I want to talk about the typical down payment on a house is because the most common number you hear when talking about down payments is 20%. Financial experts really encourage people to put 20% down on a home. And, pretty much any article you read about buying a home will talk about coming up with your 20% for a down payment as one of the first steps to buying a house.

But, is 20% really the typical down payment on a house? Do most first time home buyers actually save that much? That’s what this article is about today.

Why Do Experts Recommend a 20% Down Payment?

Before we dive into the typical down payment on a home, I want to talk about why so many financial experts talk about putting 20% down. After all, putting 20% down on your home is the gold standard in the industry, and there are a few reasons for that.

First of all, when you put 20% down on your home, that means that you own a good portion of one of the biggest investments you’ll ever make. And, because it’s such a huge purchase, it’s wise to own a solid amount of it. After all, the goal over time is for you to become the sole owner of your home. Until then, the bank is the entity that owns a majority of it and you are essentially buying it back from the bank.

Secondly, when you put 20% down on your home, you avoid paying something called private mortgage insurance. Private mortgage insurance is a monthly insurance payment that does not actually benefit you in any way at all. It solely exists to protect the bank against buyers who could not come up with a 20% down payment. The reason is that buyers who don’t have 20% are considered riskier buyers. So, the bank wants to make sure that in the event the home owner can’t pay the mortgage bill, the bank has insurance against that. To put it another way, the bank makes you pay an extra bill every month to protect them in case you can’t actually pay the bills you owe them.

Lastly, consumers who do save 20% for a home and couple that with excellent credit usually qualify for some of the best interest rates. Saving a half of a percent or even 1% on a mortgage rate can save you thousands of dollars over the course of your loan. So, it’s a great goal to strive towards. That said, the majority of home owners, especially first time home owners, do not put down the full 20% on a home.

What is the Typical Down Payment on a House?

According to a 2018 report from the National Association of Realtors (NAR), 55% of home buyers who used a mortgage to buy a home put down 6% or less. And, 72% of first time home buyers using a mortgage in 2018 put down 6% or less on their home. So, the typical down payment on a home is actually closer to that 6% mark. So, contrary to popular belief, the vast majority of people buying a house are not putting down a 20% down payment.

Here at Millennial Homeowner, we do like to encourage our readers to put down at least 10% on a home. And, the reasons for that are the same as mentioned above. Namely, it’s a good idea to own a good chunk of the biggest investment you’ll ever make. If you need help saving up for a down payment quickly, check out our down payment accelerator. It’s a product that can help you stay motivated and fill up that down payment fund as quickly as possible.

Should I Wait to Buy So I Can Make a Larger Down Payment?

Deciding when to buy a home and how much to put down is a personal decision. What’s right for you really depends on your own personal finances, your comfort level with debt, and how much available cash flow you have to purchase a home. If you need help determining how much home you can actually afford (not just what the bank tells you that you can afford) you can use our handy mortgage affordability calculator. This should give you a good idea of how much home you can truly afford, and it can also show you how the size of your down payment can make an impact on your monthly mortgage payment.

How Can I Save for a Down Payment Quickly?

Hopefully after reading this, you see the value in saving a substantial down payment for your home purchase. Maybe you even want to save 10% or 20% down, rather than the 6% or less like so many other homeowners do.

For most millennial homeowners, saving a down payment on a home will be the biggest amount of money they ever save for a single purchase. So, it’s a huge accomplishment. But, if you’re eager to save it quickly, we have some advice on that too.

Once you determine how much of a down payment you want to save, open a separate savings account preferably a high yield savings account. It’s so helpful to put your savings in a spot far away from your regular spending. That way, you can build it up quickly without being tempted to dip into it. Do your research because the interest rates on high yield savings accounts are constantly changing.

Next, set up automatic transfers to that account every time you get paid. Again, a hands off approach to building this savings account is the fastest way to help it grow. Out of sight and out of mind is a great way to protect you from seeing that large amount growing in your account and being tempted to spend it on something else.

Lastly, pick up a side hustle and put the money you make from that into your separate down payment fund. A side hustle coupled with automatic savings is the best combination for getting you to your down payment goal faster.

You Can Save More Than the Typical Down Payment

Remember, even though most home owners put down 6% or less when they buy a home with a mortgage, that doesn’t mean it’s the best financial decision for you. At Millennial Homeowner, our goal is to help millennials become smarter, happier homeowners and that really starts with buying a home that you can afford.

Having a solid down payment is a great way to get competitive interest rates and to lower what your monthly mortgage payment would be otherwise. If you want to make sure you’re taking all the right financial steps when you’re buying a home, check out our home buying guides and workbooks in our shop.

You + Sharing This = Awesome!