TheMReport — News and strategies for the evolving mortgage marketplace.
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38 | TH E M R EP O RT O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T ORIGINATION THE LATEST The Down Payment Is the Big Thing The average down payment costs two-thirds of the average annual income. T wenty percent is an important number for homebuyers. It's the amount of a standard initial down payment on a home, and as Zillow reported, it's also the percentage of buyers who say saving for that payment is their biggest concern. According to Zillow, the me - dian U.S. home price is $192,500, which means that a 20 percent down payment would be $38,500. That's two-thirds the average an - nual income, even before closing costs. That's also just the average. In some large markets, particularly in coastal California cities, buyers who make median salaries for those markets must save nearly 200 percent of their annual sala - ries just to make that one-fifth down payment. In San Jose, for example, the median income is $105,455, but the median home price is $961,600. A 20 percent down payment would be about $192,000, or 182 percent of a me - dian income. On the other side of the spectrum, buyers in Pittsburgh, Indianapolis, and Kansas City would need to put away less than half their salaries for a down pay - ment on a median priced home. The dynamic is especially important to first-time buyers who make up half of all home purchases but face increasing troubles landing deals because, among other reasons, they bring no equity to the sales table. Trulia reported that first-timers were more susceptible to having deals fall through after they are started than repeat buyers because of unfamiliarity with the process, lack of equity, and sheer afford - ability—first-time buyer house- holds typically will need to spend nearly 39 percent of their monthly income to purchase a home, ac- cording to Trulia. Zillow's Chief Marketing Officer, Jeremy Wacksman, said the 20 percent down payment plateau is an important one when factoring in the long-term pur - chase of a home. While it is pos- sible 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. According to Zillow, a better interest rate can mean thousands of dollars saved over time. On a $200,000 loan, for example, lowering the interest rate by half a percentage point would save the borrower $20,000 over the lifetime of the loan.