A Down Payment Costs Home Buyers an Average of 2/3 of Annual Income
Saving for a down payment is the most pressing concern of one in five home-buyers; here's where a 20 percent down payment hurts the most.
Jan 13, 2017, 07:00 ET
SEATTLE, Jan. 13, 2017 /PRNewswire/ -- Cobbling together a 20 percent down payment on a home costs more than two thirds of the average annual income – one of the reasons potential home buyers say saving for a down payment is among their top concerns.
In the U.S., to buy a median-priced home for $192,500, a buyer must scrape together $38,500 in cash – plus any closing costs and moving expenses – in order to ensure they qualify and get the best terms on their mortgage.
Among large housing markets, buyers in the San Jose, San Francisco and Los Angeles metros must come up with the largest percentage of their income to buy a home – 182 percent of the average annual income to put 20 percent down on the median home.
In San Jose, where the median income is $105,455, a down payment on the median $961,600 home is $192,320.
Buyers in Pittsburgh, Indianapolis, and Kansas City set aside the smallest chunk of their income for the ideal down payment: 48 percent of the median annual wage.
Should mortgage interest rates rise in 2017 as expected, a solid down payment will become increasingly important. While it is possible to put down as little as 3.5 percent on a home, the trade-off is a higher interest rate and costly private mortgage insurance. A better interest rate can translate to thousands of dollars over time; on a $200,000 loan, lowering the interest rate by half a percentage point will save $20,000 over the lifetime of the loani.
"Saving enough cash for a down payment is a major barrier to homeownership, especially in expensive markets, where a 20 percent down payment can cost nearly $200,000," said Zillow Chief Marketing Officer Jeremy Wacksman. "While it's possible to buy a house with a smaller down payment, 20 percent ensures the best rates. As important as it is to find a monthly payment you can afford, some buyers' budgets will come down to the amount of cash they can bring to the table."
Nearly half of all home buyers are buying a home for the first time, according to the Zillow Group Report on Consumer Housing Trendsii. Those buyers can't rely on the equity in their current home and must come up with the cash to get into the housing market – often while paying record-high rents. First time home buyers are also more likely to have received a financial gift to help with their down payment.
One in five home searchers said saving for a down payment is their top concern about the home-buying process – second only to finding an affordable home, which was their top concerniii. Most – 56 percent – saved for their down payment the old-fashioned way, setting aside a little money at a time, according to the Zillow Group Report.
One third of buyers used more than one source of funds for their down payment, combining savings with gifts and loans from family and friends or cashing in their retirement.
Home shoppers can use the Zillow® Affordability Calculator to see how varying loan amounts and down payments will impact monthly payments and the lifetime balance of their mortgage.
| Metro Area |
Zillow Home |
Median 20% |
Median Incomeiv |
Percent of Income |
| United States |
$ 192,500 |
$ 38,500 |
$ 57,397 |
67% |
| New York/ Northern New Jersey |
$ 400,500 |
$ 80,100 |
$ 70,502 |
114% |
| Los Angeles |
$ 590,000 |
$ 118,000 |
$ 64,806 |
182% |
| Chicago, IL |
$ 203,400 |
$ 40,680 |
$ 65,002 |
63% |
| Dallas-Fort Worth, TX |
$ 200,400 |
$ 40,080 |
$ 62,607 |
64% |
| Philadelphia, PA |
$ 213,800 |
$ 42,760 |
$ 67,068 |
64% |
| Houston, TX |
$ 176,000 |
$ 35,200 |
$ 62,099 |
57% |
| Washington, DC |
$ 378,000 |
$ 75,600 |
$ 95,176 |
79% |
| Miami-Fort Lauderdale, FL |
$ 245,200 |
$ 49,040 |
$ 51,528 |
95% |
| Atlanta, GA |
$ 172,300 |
$ 34,460 |
$ 61,967 |
56% |
| Boston, MA |
$ 408,400 |
$ 81,680 |
$ 80,846 |
101% |
| San Francisco, CA |
$ 824,600 |
$ 164,920 |
$ 91,777 |
180% |
| Detroit, MI |
$ 134,400 |
$ 26,880 |
$ 55,153 |
49% |
| Riverside, CA |
$ 318,200 |
$ 63,640 |
$ 57,581 |
111% |
| Phoenix, AZ |
$ 228,900 |
$ 45,780 |
$ 57,317 |
80% |
| Seattle, WA |
$ 412,600 |
$ 82,520 |
$ 77,809 |
106% |
| Minneapolis-St Paul, MN |
$ 235,000 |
$ 47,000 |
$ 72,981 |
64% |
| San Diego, CA |
$ 526,500 |
$ 105,300 |
$ 69,374 |
152% |
| St. Louis, MO |
$ 147,800 |
$ 29,560 |
$ 58,114 |
51% |
| Tampa, FL |
$ 177,200 |
$ 35,440 |
$ 49,805 |
71% |
| Baltimore, MD |
$ 256,600 |
$ 51,320 |
$ 73,893 |
69% |
| Denver, CO |
$ 352,800 |
$ 70,560 |
$ 72,470 |
97% |
| Pittsburgh, PA |
$ 133,400 |
$ 26,680 |
$ 55,671 |
48% |
| Portland, OR |
$ 351,800 |
$ 70,360 |
$ 66,047 |
107% |
| Charlotte, NC |
$ 166,600 |
$ 33,320 |
$ 55,923 |
60% |
| Sacramento, CA |
$ 350,200 |
$ 70,040 |
$ 65,002 |
108% |
| San Antonio, TX |
$ 156,200 |
$ 31,240 |
$ 55,796 |
56% |
| Orlando, FL |
$ 198,100 |
$ 39,620 |
$ 52,189 |
76% |
| Cincinnati, OH |
$ 147,800 |
$ 29,560 |
$ 58,567 |
50% |
| Cleveland, OH |
$ 130,600 |
$ 26,120 |
$ 52,565 |
50% |
| Kansas City, MO |
$ 151,900 |
$ 30,380 |
$ 62,639 |
48% |
| Las Vegas, NV |
$ 213,700 |
$ 42,740 |
$ 52,690 |
81% |
| Columbus, OH |
$ 160,400 |
$ 32,080 |
$ 60,068 |
53% |
| Indianapolis, IN |
$ 133,600 |
$ 26,720 |
$ 55,921 |
48% |
| San Jose, CA |
$ 961,600 |
$ 192,320 |
$ 105,455 |
182% |
Zillow
Zillow® is the leading real estate and rental marketplace dedicated to empowering consumers with data, inspiration and knowledge around the place they call home, and connecting them with the best local professionals who can help. In addition, Zillow operates an industry-leading economics and analytics bureau led by Zillow's Chief Economist Dr. Svenja Gudell. Dr. Gudell and her team of economists and data analysts produce extensive housing data and research covering more than 450 markets at Zillow Real Estate Research. Zillow also sponsors the quarterly Zillow Home Price Expectations Survey, which asks more than 100 leading economists, real estate experts and investment and market strategists to predict the path of the Zillow Home Value Index over the next five years. Zillow also sponsors the bi-annual Zillow Housing Confidence Index (ZHCI) which measures consumer confidence in local housing markets, both currently and over time. Launched in 2006, Zillow is owned and operated by Zillow Group (NASDAQ:Z and ZG), and headquartered in Seattle.
Zillow is a registered trademark of Zillow, Inc.
i Average savings comparing a $200,000 30-year fixed loan at 3.5% and 4.0%, assuming a 20% down payment.
ii The first annual Zillow Group Report is the largest-ever survey of U.S. home buyers, sellers, owners and renters, and asked more than 13,000 U.S. residents aged 18 to 75 about their homes – how they search for them, pay for them, maintain and improve them, and what frustrations and aspirations color their decisions.
iii This survey was conducted from Nov. 30, 2015 through Dec 2, 2015 of 1,010 adults by ORC International on behalf of Zillow, Inc.
iv Income data is sourced from the U.S. Census Bureau, Moody's and the Bureau of Labor Statistics
SOURCE Zillow, Inc.