One of the biggest hurdles to homeownership is saving up the all-important down payment. It can impact how much house you can afford, what types of loan you use, and how long you need to wait to become a homeowner. So what is the typical down payment amount for home buyers?

What Is a Down Payment?

The down payment is a percentage of the home’s value that the buyer pays at the time of purchase, while financing the rest using a home loan called a mortgage. Most lenders ask for a 20% down payment for a conventional mortgage, but have special programs and products that allow for lower down payments as long as other criteria are met.

The down payment is required so that the lender knows that the borrower has saved and given homeownership serious financial consideration. It lowers the risk that the borrower will just walk away from their home and default on paying their loan back.

Average Down Payment Amount

The National Association of Realtors found that homebuyers overall put down an average of 12% in 2019. First-time homebuyers tended to finance a larger portion and have a smaller down payment, with an average down payment of 6%. Experienced homebuyers put down an average of 16%. This can be due to money made by selling their previous home, which was a major contributing factor in 38% of down payments. 60% of respondents said that they saved up money for their down payment.

Down Payment Requirements

The minimum required amount of the down payment depends on the type of loan. Here are a few of the most commonly offered mortgage types:

• Conventional loan: 3% minimum down payment. A 3% down payment is the absolute minimum, but you will need to pay for private mortgage insurance, PMI, until you have at least 20% equity in your property. If your down payment is 20% or higher, you do not need to pay PMI.
• VA loan: No down payment required. Veterans and current members of the military and National Guard are eligible to use a VA loan.
• USDA loan: No down payment required. You must be purchasing a home in a designated rural or suburban area.
• FHA loan: 3.5% minimum down payment. You will typically pay for mortgage insurance for the life of the loan, even after you reach 20% equity in your home.

Saving for a Down Payment

No matter what type of loan you plan to use, it is a good idea to save up for a down payment, even if it is not required. You can set up a monthly allotment to your savings account, take on a side hustle, or make lifestyle adjustments to get more money in the bank. This can reduce the amount that you have to borrow and result in more favorable loan terms.

Being a savvy real estate buyer or seller requires that you know and understand the market conditions. This includes the types of home, comparable purchases prices, and so much more. But one of the most important factors to understand is where you are in a buyer’s market or seller’s market. The concept can be simplified to the following definitions.

Buyer’s market: Supply is greater than demand

Seller’s market: Demand is greater than supply

Supply refers to all of the homes currently listed for sale. These can include single family homes, condos, and townhouses. Demand refers to the people who are currently searching for those homes. When there are more homes than people, buyers get to be really picky because they have plenty of choices. This might result in overall lower purchase prices, more competition for sellers to make their home stand out, and longer times for homes to sit on the market. On the other side, if there are more people searching than homes available, the competition to get an approved offer can be fierce. This can result in overall higher purchase prices, buyers including fewer contingencies or asking for fewer concessions, and less time for homes to be available before an offer (or multiple) is made. It might even result in a bidding war between potential buyers!

How do I know what type of market I am in? Buyer’s or seller’s?

First, look at the homes that are currently listed for sale. If there are a lot, more than usual, you are probably in a buyer’s market. If many have been on the market for a long time, longer than a month, it is another good indication that it is a buyer’s market. In general, if the number of homes on the market divided by the number of homes that sold in the previous month is higher than 7, it is a buyer’s market. Lower than 5 indicates a seller’s market.

You can also look at recently sold homes. If many of them sold for above asking price, it is most likely a seller’s market. If they have had numerous reductions in price before they sold, chances are it is a buyer’s market.

Finally, look at the trend of purchase prices over a few months of data. If median sale prices have been increasing over time, that means that people are willing to pay more for homes, likely due to a shortage—seller’s market. If prices have been going down, there are more buyers than homes and they can afford to pass on an expensive home or offer a lower price—buyer’s market.

Working with a Realtor or real estate agent is a great way to learn more about your local market and be prepared, whether you are a buyer or seller.

Finding a great deal on your home purchase requires that you understand the different types of home loans available. Here are popular mortgage products and who can use them.

• Conventional Loan: This is most popular type of loan and the one that most people think of when beginning their home search. To get a conventional loan, you should have a sizable down payment (20% of the purchase price is typical but you can have a lower down payment if you are willing to pay for private mortgage insurance), a high credit score, and a low debt-to-income ratio. If you choose a fixed-rate conventional loan, your interest rate will lock in at the time of purchase and remain the same for the entire loan.
• Adjustable Rate Mortgage (ARM): With similar qualification standards as a conventional loan, this is a good option for those with a sizable down payment, good credit, and a low DTI who will likely sell or pay off their home quickly. An ARM loan begins with a low interest rate, which the lender has the option to increase at periodic increments over the life of the loan (with a cap).
• USDA Loan: This is a government-secured loan, meaning that the USDA guarantees the lender will be paid as an incentive for people who purchase in rural or some suburban areas. You do not need to have any money for a down payment and are not required to pay PMI, but the home must be in an area that qualifies for this type of mortgage and have good credit.
• VA Loan: Another government-secured mortgage product, VA loans are available to veterans, military members, members of the National Guard, and some surviving military spouses. You will pay a small fee to cover processing but do not need to have a down payment or pay PMI. There are a few restrictions for how you can use a home that you have purchased with a VA loan, such as a 60-day move-in timeline requirement and primary residence requirement.
• FHA Loan: This is a great loan for those with less money for a down payment or a lower credit score. You can put down as little as 3.5% using an FHA loan, but you will pay for mortgage insurance for the life of the loan in many cases.
• Jumbo Loan: If you are trying to purchase a very expensive home, you may need to use a jumbo loan. The terms are often similar to a conventional loan, with higher loan limits.

You should discuss your options with your lender to determine which mortgage product will work best for you and your new home purchase.