Why Down-Payment Amounts Are Decreasing

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IRVINE, CA—The low-down-payment share of total home purchases nationally is at a nearly two-year high of 27%, according to a new report from RealtyTrac. The average down payment for single-family homes, condos and townhomes purchased in the first quarter was 14.8% of the purchase price, down from 15.2% in the previous quarter and down from 15.5% a year ago to the lowest level since Q1 2012. The report also shows that the average down payment for FHA purchase loans originated in the first quarter was 2.9% of the purchase price while the average down payment for conventional loans was 18.4% of the purchase price.

According to Daren Blomquist, VP of RealtyTrac, “Down-payment trends in the first quarter indicate that first-time homebuyers are finally starting to come out of the woodwork, albeit gradually. New low-down-payment loan programs recently introduced by Fannie Mae and Freddie Mac, along with the lower insurance premiums for FHA loans that took effect at the end of January are helping, given that first-time homebuyers typically aren't able to pony up large down payments. Also helping tilt the balances toward first-time homebuyers in the first quarter is less competition from the large institutional investors that have been buying up starter-home inventory as rentals.”

The average down payment in dollars was $57,710 in the first quarter, slightly up from $57,618 in the previous quarter and down slightly from $57,992 in the first quarter of 2014. The average down payment in dollars for FHA purchase loans originated in the first quarter was $7,069, while the average down payment for conventional loans backed by Fannie Mae and Freddie Mac was $72,590. FHA loans as a share of loan originations increased throughout the quarter, from 21% in January to 22% in February to 25% in March.

As GlobeSt.com reported in May, affording the down payment on a home is still a major hurdle for first-time home buyers, although personal savings have been inching up since 2008, Blomquist told us exclusively. Given the firm's recent report about many couples having to choose between a wedding and a down payment, we spoke with Blomquist about the role of down payments in home buyers' decisions and how likely it will be that Millennials will return to home buying at some point in the future.

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