Buyers in the market for a new home are digging deeper into their cash reserves than ever before.

The typical down payment hit a record high of $67,500 in June, according to a new Redfin report. That’s up nearly 15% from last year, when the average down payment was $58,788.

Mortgage rates have been hovering close to 7% for most of the year, pushing monthly payments higher as home prices remain elevated. Now, homebuyers are relying on larger amounts of cash upfront to reduce how much they have to borrow and ultimately lower their monthly mortgage payments, Annie Foushee, a Denver-based Redfin agent wrote in the report. The typical down payment now covers more than 18% of a home’s purchase price.

The report is based on an analysis of county records in 40 of the largest U.S. metros through June, the most recent month where data is available. Redfin’s tracking of this metric goes back to 2011.

Higher down payments improve housing affordability

The housing market has been difficult over the past few years thanks to soaring home prices and high mortgage rates.

According to Redfin, the median sales price in June was $442,525, while Freddie Mac’s interest rate on a 30-year fixed-rate loan averaged 6.92%. At that price and rate, the monthly mortgage payment was more than $2,700.

For repeat buyers or homeowners planning to buy a new property, financing a down payment is more accessible. Increased home prices have led to a record amount of equity, which homeowners can tap through a home sale or an equity loan. With more cash available, buyers can take out a smaller mortgage and ideally save on interest over time.

But for first-time homebuyers who can’t rely on selling a current home to fund a down payment, coming up with enough cash to put money down usually means outside help.

“These buyers will often utilize the help of family members to put down more than they could on their own,” Foushee said.

According to recent Redfin data, the number of Gen Z and millennial buyers relying on family help with down payments has doubled, jumping from 18% in 2019 to 36% this year. Family resources aside, 60% of younger buyers will draw on their own savings, 39% have a second job to help finance a home and 22% plan to dip into retirement accounts.

Fortunately, there could be some relief on the horizon. Mortgage rates have ticked down over the past few months, averaging about half a percentage point lower than in June.

Plus, at its next meeting in September, it’s almost certain that the Federal Reserve will reduce its benchmark interest rate. Typically, a reduction in the federal fund rate leads to lower interest rates on all types of loans, including mortgages.

Metros with the largest down payment increases

These are cities with the most significant increase in median down payment, according to Redfin’s data.

City

% change from last year

Median down payment

Newark, New Jersey

51.5%

$125,000

Las Vegas, Nevada

47.0%

$45,500

Washington, D.C.

38.7%

$54,800

New Brunswick, New Jersey

32.7%

$124,200

Nashville, Tennesee

32%

$61,400

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According to a recent report from Money.com, homebuyers are facing record high down payments as they navigate the current housing market. The report, based on an analysis of county records in 40 of the largest U.S. metros, found that the average down payment in June was $67,500, a 15% increase from the previous year’s average of $58,788.

This trend is largely driven by rising mortgage rates, which have been hovering around 7% for most of the year. As a result, homebuyers are relying on larger down payments to reduce the amount they need to borrow and lower their monthly mortgage payments. In fact, the typical down payment now covers over 18% of a home’s purchase price.

The report also notes that this trend is making it more difficult for first-time homebuyers, who may not have the resources to finance a large down payment on their own. Many are turning to family members for help, with the number of Gen Z and millennial buyers relying on family assistance doubling from 18% in 2019 to 36% this year.

However, there may be some relief on the horizon. Mortgage rates have recently decreased and the Federal Reserve is expected to lower its benchmark interest rate at its next meeting in September. This could lead to lower interest rates on all types of loans, including mortgages.

The report also highlights the cities with the largest increases in down payments, including Denver, where Redfin agent Annie Foushee notes that buyers are utilizing family resources and drawing on their own savings to finance their down payments. 

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