One of the biggest upfront costs for home buyers is the down payment. Building a significant nest egg while balancing making rent payments has always been challenging, but rising home prices have driven up down payments considerably over the past few years.
This rising expense creates a new barrier to homeownership as the average down payment surges to record highs.
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First-time home buyers often make a smaller down payment than older buyers purchasing a second—or even third—home. However, even down payments between 5% to 10% of a home’s value will require five-digit savings.
Elevated mortgage rates and home prices have kept buyers out of the housing market for several years. However, a recent downturn in mortgage rates could reduce mortgage payments despite an overall uptick in home prices.
A young family in their new home. Rising mortgage rates, home prices, and down payments have created a large barrier to homeownership for younger buyers.
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Home down payments reached record highs in 2024
Although the general homebuying rule is to make a 20% down payment, typical payments vary by age and income. The median down payment for older buyers ranges from 15% to 35%, while down payments among younger buyers tend to hover around 12%.
Most prospective home buyers cite the down payment and closing costs as a significant obstacle to homeownership.Â
Since down payments are a fraction of a home’s value, they increase as home prices rise. And according to Realtor.com analysis, last year saw the highest down payments on record.
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Median down payments reached an all-time high of 15.1% and $32,700 in Q2 2024, dropping slightly to 14.4% and $30,250 in Q4 2024. This trend aligns with the rising concern that the ‘American Dream’ of home ownership is out of reach for many buyers.
20% of aspiring homeowners fear they will never be able to save enough money for a down payment, and another 32% believe it will take at least five years. Though mortgage rates have been climbing over the past six months, the anticipated drop in rates over the next two years may help homeowners with their down payments.
Lower mortgage rates will translate to lower down payments
With the exception of a brief decline in 2024, mortgage rates have steadily risen since early 2022. However, 2025 looks more promising, with 30-year mortgage rates dipping to 6.65% by the end of March, the lowest level seen since October.
Realtor.com Chief Economist Danielle Hale explains why this steady decline in mortgage rates could mean lower down payments for prospective homeowners.
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“As mortgage rates ease, a more diverse set of buyers, in terms of budgets, will likely enter the market, and the incentive to minimize their home loan will soften,” Hale said. “However, if sale inventory fails to keep up with increased buyer demand, down payments could climb once again as the result of increased competition.”
However, many housing experts predict that the 2025 housing market may pivot to a buyer’s market as home price growth decelerates and listings stay on the market for longer.
Whether down payments are moderate will depend on how mortgage rates and housing prices fluctuate over the next year.
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