To afford a monthly mortgage payment, middle-class Americans need to put more than $127,000 down

That $127,750 down payment is what a household making the median income would need to put down when purchasing a typical U.S. home — valued at about $360,000 — so that the monthly mortgage payments take up no more than 30% of that household's monthly income.¹

The enormous gap between the down payment needed now and five years ago underscores how the pandemic fueled a scorching-hot housing market, and why the rise in mortgage rates in the time since has cooled the market. Stubbornly high mortgage rates have pushed both buyers and sellers to the sidelines. With so few homes for sale, competition is stiff among the remaining buyers.

"Down payments have always been important, but even more so today. With so few available, buyers may have to wait even longer for the right home to hit the market, especially now that buyers can afford less. Mortgage rate movements during that time could make the difference between affording that home and not," said Skylar Olsen, chief economist at Zillow. "Saving enough is a tall task without outside help — a gift from family or perhaps a stock windfall. To make the finances work, some folks are making a big move across the country, co-buying or buying a home with an extra room to rent out. Down payment assistance is another great resource that is too often overlooked."

To save up $127,750, it would take a household making the median income about 12 years (assuming its members save 10% of their income each month with a 4% annual return). It's no wonder then that 43% of last year's buyers used a gift from family or friends for at least part of their down payment, the highest share since at least 2018.

There are still affordable pockets of the U.S. In 10 major metropolitan areas, the typical home is affordable to a median-income household with less than 20% down. Pittsburgh boasts the most affordable housing market. A median-income household there could afford the monthly payments on a typical home even with no money down.

California is on the other end of the affordability spectrum. A median-income household in San Jose would need to put down more than $1.3 million to afford the mortgage payments on a typical home — that's more than the typical home is worth in every other major market. In Los Angeles, a median-income household would need an 81.1% down payment ($780,203) to afford the typical home, the highest in the country. This helps explain why many California metros have seen population losses since 2020, as long-distance movers target areas with more affordable housing.

For those who qualify, down payment assistance can amplify savings and help a buyer enter homeownership more quickly. In Minneapolis, for example, the average amount of down payment assistance available across the metro is just under $22,750, according to data from Down Payment Resource. A median-income buyer in Minneapolis without down payment assistance would need a 27% down payment to comfortably afford the typical home. With $22,750 in down payment assistance, they would need to put 21% down.

"Homeownership is the primary source of net worth and generational wealth for most Americans, and declining affordability is making it harder for average earners to get their foot in the door of an entry-level home. Luckily, there are more than 2,373 down payment assistance programs nationwide with at least one program in every county and 10 or more programs available in 2,000 counties," said Down Payment Resource Founder and CEO Rob Chrane. "In fact, down payment assistance providers have responded to the difficult housing market by increasing the number of programs offered and expanding inventory options with support for manufactured homes and owner-occupied multi-unit homes."

Every for-sale listing on Zillow displays available down payment assistance programs that a buyer may qualify for.

About Zillow Group
Zillow Group, Inc. (Nasdaq: Z and ZG) is reimagining real estate to make home a reality for more and more people. As the most visited real estate website in the United States, Zillow and its affiliates help people find and get the home they want by connecting them with digital solutions, dedicated partners and agents, and easier buying, selling, financing and renting experiences.

Zillow Group's affiliates, subsidiaries and brands include Zillow®, Zillow Premier Agent®, Zillow Home Loans℠, Trulia®, Out East®, StreetEasy®, HotPads®, ShowingTime+℠, Spruce® and Follow Up Boss®.

All marks herein are owned by MFTB Holdco, Inc., a Zillow affiliate. Zillow Home Loans, LLC is an Equal Housing Lender, NMLS #10287 (www.nmlsconsumeraccess.org). © 2024 MFTB Holdco, Inc., a Zillow affiliate.

¹Estimated monthly mortgage payments include principal and interest based on the typical home value according to the Zillow Home Value Index and prevailing mortgage rates according to Freddie Mac, plus estimates for property taxes, homeowners' insurance and maintenance.

SOURCE Zillow