The average down payment for the typical US home reaches $127,750: Zillow

Monthly payments may be going down, but down payments and home insurance for new buyers are higher than ever.

Every aspect of homebuying has gotten more expensive in the years since the COVID-19 pandemic. Home prices have been hitting new record highs for most months and mortgage rates are still hovering in the high 6% range. All these factors have added up to pricey down payments. The average down payment needed needed for a median-income family to afford a typical home reached $127,750, according to Zillow.

Instead of the typical 20% suggested by many lenders for conventional mortgages, prospective buyers are now saddled with a 35.4% down payment in order to make an average home affordable. This down payment is necessary for homes valued at about $360,000.

The down payment needed in today’s housing market is in stark contrast to five years ago when buyers could put down nothing and still be able to afford a median-priced home.

"Saving enough is a tall task without outside help — a gift from family or perhaps a stock windfall," Zillow Chief Economist Skylar Olsen said. "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."

Saving for a $127,750 down payment is no small feat. It would take a household with an average income nearly 12 years to save, and that’s assuming a 10% monthly savings rate with at least a 4% annual return.

Just 10 of the country’s 50 biggest housing markets have buying options that require 20% down or less. Pittsburgh is one of the more affordable markets. Buyers in the city can often secure a home without any down payment.

On the other end of the spectrum, most markets in California are unaffordable for average buyers. In San Jose, households with median incomes often need to put down more than $1.3 million to secure a mortgage on a typical home, according to Zillow.

If you think you’re ready to shop around for a home loan, consider using Credible to help you easily compare interest rates from multiple lenders without affecting your credit score.

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Although current buyers are struggling with high down payments, homeowners are seeing mortgage payments drop on average. In the four weeks ending July 14, the average house payment was $2,722, $115 lower than the all-time high, Redfin reported.

Thanks to dropping mortgage rates, buyers and variable-rate mortgage borrowers are paying slightly less in monthly payments. For example, a buyer with a $3,000 monthly budget can afford a $450,000 home at a 6.8% rate. That’s an additional $25,000 in buying power compared to April when the same buyer could have bought a $425,000 home at a 7.5% rate.

Many sellers are tired of waiting for mortgage rates to drop more significantly, so they’re begining to list their homes on the market. This has led to a 6.4% increase in listings, one of the highest levels in nearly four years, lessening some of the pressure on buyers. How the market will look moving forward remains uncertain, however.

"Now that it’s looking increasingly likely the Fed will cut interest rates by the end of the year, some house hunters believe mortgage rates will fall more and are waiting for that to happen before they buy," Redfin economic research lead Chen Zhao said.

"But they may be waiting in vain; it’s unlikely mortgage rates will drop much lower in the next few months, as markets are already pricing in the expectation of a rate cut in September, followed by several more at the end of 2024 and into 2025," Zhao said. "In fact, now may be the right time for house hunters to get serious about making offers before prices increase even more and they lose some power. Plus, there are more homes to choose from, and many listings are growing stale, giving buyers an opportunity to negotiate."

If you're looking to purchase a home, you can check out Credible to find the best mortgage rate for your financial situation by comparing multiple lenders at once.

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One of the home expenses that continues to trouble consumers is homeowners insurance. States throughout the country are seeing major homeowners insurance premium increases.

California has been facing a particularly difficult home insurance crisis in the last few years, largely due to damaging wildfires that have caused insurance claims to skyrocket. Insurance companies are struggling to handle this sudden influx of claims.

State Farm recently requested the largest increase in rates California has seen yet. State Farm General, which is the company’s California branch, just submitted a request to raise rates for owners of single-family homes and condos, as well as for renters. The increase would potentially raise rates by 30% for homeowners, 36% for condo owners and 52% for renters.

Allstate is also asking for a home insurance rise in California this year. The company is hoping for an average raise of 34.1% across the state, down slightly from the initial 39.6% increase they wanted last year.

Higher repair costs and more frequent severe weather are the main reasons Allstate is asking for the increase. Paired with legal system abuses, these issues are causing the company to struggle to meet demand.

With different coverage amounts, it’s important to shop around to find the right home insurance plan that fits your needs. Visit Credible to start the process and maximize the value you gain from your homeowner’s policy.

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