The average down payment for homebuyers in the United States has reached a record $67,500, according to a new study. data has revealed.
High mortgage rates mean home buyers are incentivized to shell out more money up front to soften the blow.
This, coupled with rising home prices, means that down payments in excess of $400,000 are now the norm in some American cities.
Down payments have also increased in percentage terms, according to Redfin’s analysis.
The typical homebuyer paid 18.6 percent of the purchase price for a home in June, the highest level in more than a decade and up from 15 percent last year.
High mortgage rates mean home buyers are incentivized to shell out more money up front to soften the blow.
California cities top the list of places where homebuyers have to shell out the most money up front when purchasing a home.
In San Jose, the typical down payment is $451,500, according to Redfin, and the median amount is $441,500 in San Francisco.
In Anaheim, the average down payment is $300,000, while in Oakland the average down payment is $195,000.
Other major cities where typical down payments hover around $200,000 include Seattle, where the average sum is $206,950, and New York City, where buyers pay $199,775, on average.
In San Francisco, the average down payment was also equal to 25.8 percent of the purchase price, the highest among the metropolitan areas analyzed by Redfin.
San Jose followed with 25.7 percent and Anaheim with 25 percent.
Down payment percentages are typically higher in the San Francisco Bay Area due to a higher concentration of wealthy residents who can afford to pay a larger percentage of the purchase price.
“San Jose has a lot of foreign investors who buy sight unseen and a lot of real estate investors who buy rundown houses, put lipstick on them and flip them for a profit,” Craig Pellegrini, a Redfin Premier real estate agent in San Jose, said in a report earlier this month.
The nearly 15 percent jump in the average down payment in the United States significantly outpaced the rise in home prices, which rose 4 percent in June compared with a year earlier.
Down payments are rising because buyers are incentivized to put down more money up front and borrow less when mortgage rates are higher, to try to minimize their monthly payments.
Rising home prices also naturally lead to a higher down payment, which is a percentage of the home’s price.
With home prices on the rise, people who sell their old property for more than they bought it for can also use the extra equity for a larger down payment on their new home.
“Investors are still coming in with cash offers for homes that need updating. Traditional buyers are making large down payments to try to lower their mortgage payment,” said Annie Foushee, a Redfin agent in Denver.
‘These buyers often enlist the help of family members to pay more than they could on their own.’
In San Jose, the typical down payment is $451,500, according to Redfin
Down payment percentages are typically higher in the San Francisco Bay Area due to a higher concentration of wealthy residents who can afford to pay a higher percentage.
There are still some major metropolitan areas where down payments are well below the national average.
In Virginia Beach, the average down payment in June was $9,195, with a typical down payment percentage of 3 percent.
However, Redfin noted that the area has a higher concentration of veterans using VA loans with little to no down payment.
Detroit has the second-lowest average down payment among major metropolitan areas, at $16,000, while homebuyers typically pay $26,850 in Cleveland and $28,000 in Pittsburgh.
This comes after Vice President Kamala Harris proposed giving $25,000 in assistance to first-time homebuyers if she wins the presidential election in November.
Details of the plan have not yet been announced, nor exactly who would qualify for down payment assistance.
But some economists have expressed concern that the benefit would lead to increased competition for a limited supply of homes and thus push up home prices even further.