- The average down payment among first-time buyers is 7% in 2021.
- That would equate to $18,627 on a median-priced home in the U.S.
- Home prices rose steadily during 2020, in most U.S. cities.
- Housing affordability continues to drop, in most housing markets.
- Down payment relief may be on the way, in the form of a tax credit.
The average down payment among first-time home buyers in the U.S. rose a bit in 2020, compared to the previous year. Going into 2021, the typical down payment among first-time buyers nationwide was 7%, according to a recent report.
Of course, home prices can vary widely by location. So in real dollars, a 7% upfront investment can look very different from one housing market to the next.
According to the real estate data company Zillow, the median home price in the U.S. was around $266,104 in January 2021. A 7% down payment on a house within that price range would come to around $18,627.
Average Down Payment for First-Time Buyers in 2021
In November, the National Association of Realtors® (NAR) published its “2020 Profile of Home Buyers and Sellers.” That report was based on a nationwide survey sent to 132,550 people, with responses collected from 8,212.
Among other things, their survey asked how much money people put down when buying a home.
To quote the report:
“In addition, the 12% median overall down payment was unchanged from 2019 – that number inched up from 6% to 7% for first-time buyers. The median down payment for repeat buyers was 16% in 2020.”
Note: The NAR survey determined the median for this particular dataset. The median is the midpoint for a group of numbers. Technically, it’s not the same as an “average.” But it’s the closest figure we have to work with, to determine the average or “typical” down payment among first-time buyers in 2021. Other surveys over the past year have found similar results.
So right away, we have an interesting (but not surprising) trend about typical buying patterns. First-time buyers in the U.S. tend to put down less money than those who have owned a home in the past.
And that makes sense. After all, the repeat buyers (those who sell one house and then buy another) usually have profits from the previous sale to put toward their next purchase. So they’re often able to put more money down — on average — compared to a first-time buyer.
Also, bear in mind the difference between the average and minimum down payment required for a mortgage loan. That’s a key distinction.
FHA-insured mortgage loans allow borrowers to put down as little as 3.5% of the purchase price. With conventional loans, many lenders will allow for a down payment as low as 3%. So it’s possible to make a below-average investment on a home.
House Values Keep Climbing Across the U.S.
House prices nationwide continue to climb, as we approach the end of January 2021. This was the trend for all of 2020 (despite COVID), and it will likely continue for the foreseeable future.
The chart above shows the median home price in the U.S. going back ten years or so. As you can see, the coronavirus pandemic hasn’t had a major impact on house values. Nor is it expected to in 2021.
In January, the team at Zillow wrote:
“United States home values have gone up 8.4% over the past year and Zillow predicts they will rise 10.5% in the next year.”
This has an obvious effect on the average down payment size among first-time home buyers. As houses become more and more expensive, so too does the typical down payment among buyers. The two go hand-in-hand.
The NAR report mentioned earlier touched on this very subject. According to Jessica Lautz, vice president of demographics for NAR:
“These rising [home] costs make it that much more difficult for buyers to save for a down payment and more challenging for first-time buyers to enter the marketplace.”
A Tax Credit for First-Time Buyers Possible in 2021
The typical or average down payment among first-time home buyers continues to climb in early 2021, due to rising housing costs. In many parts of the country, it’s getting harder and harder for a person with a typical income to afford the down payment on a home.
Here’s one bit of good news. The Biden administration is pushing for a tax credit in 2021 that could benefit first-time buyers across the U.S. We covered this story a few days ago.
It’s only in the proposal stage right now. But if it clears Congress and gets signed into law, Biden’s proposal could give home buyers an “advanceable” tax credit of up to $15,000. Advanceable means you could potentially receive the credit at closing and apply it to your down payment.
(We’re monitoring this story and will provide updates as they come in.)
Don’t Forget About ‘Gift Money’
Gift money is another important concept for first-time home buyers to understand. A lot of people don’t realize this, but most of the mortgage programs available today allow borrowers to use money provided by a third party toward their down payment expense.
This is true for most of the major mortgage products, including conventional, FHA and VA.
Down payment gifts are a great way for first-time buyers to reduce the upfront costs associated with a home purchase. Of course, the money provided must truly be a gift. The person giving the funds must also sign a letter stating they do not expect repayment.
Disclaimer: This story features averages, medians and other generalities relating to down payments. As a result, portions of this article might not apply to your particular home-buying situation.
Brandon Cornett is a veteran real estate market analyst, reporter, and creator of the Home Buying Institute. He has been covering the U.S. real estate market for more than 15 years. About the author