Home prices have recently reached record highs, but mortgage rates remain stubbornly stuck just below or just above 7%, putting a strain on would-be homebuyers.
Researchers at real estate marketplace Zillow recently crunched some numbers that dramatically reveal just how taxing a mortgage can be: To cover the monthly payments on a median-priced $360,000 home, a middle-class family would need to come up with a six-figure down payment, or $127,750.
While a typical down payment is traditionally 20% of the purchase price, Zillow calculates that buyers would need to put down 35.4% of the purchase price to keep the monthly payments affordable.
Looking back at 2019, you could have bought a home with no down payment because mortgage rates were hovering just above 4% and the typical home was worth about 50% less than it is today.
With a down payment of $127,750, a median-income household could purchase a home worth about $360,000 and keep monthly mortgage payments to less than 30 percent of that household's monthly income.
More important than ever
“A down payment has always been important, but it's even more important today,” said Skylar Olsen, chief economist at Zillow. [homes] A housing shortage could mean buyers have to wait longer for the right home to come on the market, especially now when buyers have less money to pay.”
Olsen points out that while fluctuations in mortgage rates can play a role, having a large down payment is also important to keep monthly payments affordable.
“Without outside help, like a gift from family or a sudden gain in a stock market, it's extremely difficult to save enough,” Olsen says. “To make finances work, some people buy co-ops or homes with extra rooms to rent out and move around the country. Down payment assistance is another great tool that's all too often overlooked.”
Needless to say, saving $127,750 is no easy feat: According to Zillow's calculations, it would take an average-income household roughly 12 years to save up, assuming they save 10% of their income each month and earn a 4% annual return.
