“The wealth-building benefits of homeownership can often outweigh the added expenses that come with a lower down payment and/or the added time of waiting to save for a larger down payment. “In today’s red hot market, it could be okay to put only 5% down on a home if that’s what you can afford,” says Zillow’s economics manager, Cory Hopkins. The wealth-building benefits of homeownership can often outweigh the added expenses that come with a lower down payment and/or the added time of waiting to save for a larger down payment. Meanwhile, the home that could have been purchased with a 5% down payment in July 2021 will likely continue to gain value. According to Zillow research, it could take more than 40 years for the typical renter to save that additional $45,000 (under the most conservative assumptions). A 5% down payment on that home would be $15,000, while a 20% down payment would be $60,000 - a difference of $45,000. See Zillow’s Consumer Housing Trends Report for more information. While Zillow’s economists expect to see homes continue to appreciate in value over the short term and long term, it’s probably best not to bank on this kind of rapid growth lasting forever. Keep in mind, this summer brought the fastest monthly home price appreciation on record. home had appreciated by almost $5,000, so the home buyer who put only 5% down has still come out ahead, even with a higher monthly payment. Using the Zillow mortgage calculator, that buyer would end up paying approximately $370 more per month compared to the home buyer who put 20% down, due to the larger principal balance on the loan as well as the extra cost of PMI.īy August, the typical U.S. A buyer putting only 5% down would be required to pay private mortgage insurance, known as PMI, which can add to the buyer’s monthly payment. Home price appreciation and rent increases are far outpacing income growth, and the additional savings will likely take years to collect.Ĭonsider a first-time home buyer who purchased a typical U.S. When considering how much to save for a home purchase, it can make a lot of sense to buy a home with less than the standard 20% down payment. That’s why the housing experts at Zillow and the financial pros at Betterment are weighing the options to help home buyers decide how much of a down payment is right for them. It’s a strategy that has been successful in the hot pandemic housing market, but one that comes with risks. A new Zillow survey finds that a majority (64%) of first-time buyers put less than 20% down on a house, and a quarter of those surveyed put down 5% or less. Some are landing homes by eschewing the traditional 20% down payment and buying with as little as 3%–5% down. Rapidly rising home prices have made it harder for first-time buyers to save for a down payment and compete for a home.
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