{"id":4053,"date":"2024-05-15T06:50:27","date_gmt":"2024-05-15T10:50:27","guid":{"rendered":"https:\/\/www.deeds.com\/articles\/?p=4053"},"modified":"2024-06-16T10:13:20","modified_gmt":"2024-06-16T14:13:20","slug":"the-rise-and-rise-of-down-payments","status":"publish","type":"post","link":"https:\/\/www.deeds.com\/articles\/the-rise-and-rise-of-down-payments\/","title":{"rendered":"The Rise and Rise of Down Payments"},"content":{"rendered":"\n
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A down payment is the portion of a home’s purchase price the mortgage borrower pays upfront. You knew that. But did you know the median down payment for U.S. homebuyers is now more than $55K+? That\u2019s remarkable. It was less than $45K just last year.<\/p>\n\n\n\n

Buyers often try to put 20% of the purchase price down. That\u2019s not always feasible, and Redfin\u2019s latest analysis shows today\u2019s typical homebuyer putting about 15% down. Again, big rise from last year, when the typical down payment was 10%.  In some areas, a normal down payment is now well over the 20% mark.<\/p>\n\n\n\n

What\u2019s the impact of all this on deed transactions?<\/p>\n\n\n\n\n\n\n\n

The Down Payment and the Deed<\/h2>\n\n\n\n

To get a sense of how a buyer\u2019s upfront investment relates to the deed, we start with the terminology:<\/p>\n\n\n\n

Mortgage:<\/em><\/strong> A loan, with interest, usually from a bank or credit union, that empowers a borrower to buy a home over a term of years. Normally, the named mortgage holder is also the deed holder.<\/p>\n\n\n\n

Lien:<\/em><\/strong> All deed holders with mortgages have liens recorded on their titles. A mortgage lien<\/em> is a claim that lets a lender reach the home\u2019s value \u2014 and take back what a defaulting borrower owes the company. Thus, it\u2019s the lien that empowers a lender to sell collateral (such as a home) to pay off unpaid debt.<\/p>\n\n\n\n

Holding a mortgage, solo or with a co-borrower, is the most common way to buy a home. When you apply to finance a co-owned home, the lender will typically want both\/all borrowers to be named on the deed as well as on the mortgage.<\/p>\n\n\n\n

You can review just how the co-borrowers appear on the deed in this article <\/strong><\/em>on naming co-borrowers on the deed<\/em><\/strong><\/a>.<\/strong><\/em><\/pre>\n\n\n\n
So there we have the basics. The down payment becomes a borrower\u2019s initial equity in the home. The lien represents the debt yet to be paid.<\/p>\n\n\n\n
Note:<\/em><\/strong> Some states use deeds of trusts<\/em> rather than mortgages. The trust deed<\/em> is held by an institutional overseer until the borrower repays the debt fully. At that point, a deed of reconveyance<\/em><\/a> represents the complete transfer of the property to the homeowner.<\/p>\n\n\n\n
How High Are Down Payments Today\u2014And Could They Go Higher?<\/h2>\n\n\n\n
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How high are they? It depends which market you\u2019re looking in.<\/p>\n\n\n\n
Let\u2019s take the northeastern section of the country, as of early 2024. Figures are sourced from the National Association of REALTORS\u00ae.<\/p>\n\n\n\n
In the Northeast Region, where the typical home now costs about $429K, 3% down is nearly $13K. 3.5% is about $15K.  5% is about $21K. To put the \u201cstandard\u201d 20% down on the home will set you back more than $85K!<\/p>\n\n\n\n
How high could down payments go? It depends on how high home Prices go. Rising real estate prices automatically mean higher down payments.<\/p>\n\n\n\n
There\u2019s an additional factor at play here. Today\u2019s current deed holders have, as a whole, accumulated a lot of equity in their homes. (Equity is the home\u2019s value minus the debt that\u2019s attached to it.)<\/p>\n\n\n\n
How have these current homeowners accumulated that value? By holding their deeds through the market surge of recent years \u2014 and their decisions not to move<\/a> now that interest rates are high. They\u2019d like to keep their low-interest loans, thank you very much!<\/p>\n\n\n\n
People who already hold deeds are, as a whole, in a great position to put large sums down on their next homes. And why wouldn\u2019t they go ahead and make large down payments, to borrow as little as they have to at current rates?<\/p>\n\n\n\n
As you can see, interest rates factor into why <\/em>people are making big down payments. It\u2019s possible that these rates could go down in late 2024<\/a>, and that could ease the rate of down payment inflation.<\/p>\n\n\n\n
Can\u2019t Save for a Large Down Payment: What\u2019s the Workaround?<\/h2>\n\n\n\n
Getting the down payment together feels more challenging these days \u2014 because it is. The struggle is especially real for minority home buyers and first-timers. People making the shift from renting to buying haven\u2019t yet built up equity in real estate \u2014 so they lack that source of funds.<\/p>\n\n\n\n
Where can the hopeful buyer even start at this point? First, know that while a large down payment does make sense in a time of high interest rates, buyers in most markets don\u2019t need to wait until they can set aside 20%. There\u2019s much to be said for putting down what\u2019s possible, getting on the ownership ladder, building equity, and starting to accumulate retirement resources.<\/p>\n\n\n\n
In case you are wondering where the down payment percentages are lowest, Redfin\u2019s 2024 figures point to Virginia Beach (a major veterans\u2019 hub), Philly and Pittsburgh, Baltimore, and Detroit.<\/p>\n\n\n\n
But plenty of other markets and also offer opportunities, and there\u2019s a variety of trusted loan options:<\/p>\n\n\n\n