This article is the latest in a series that speculates on future housing market conditions…
A recent report by ATTOM Data Solutions (a property data company based in Irvine) showed that California cities top the list for average down payment size among home buyers. Please contact us to find out what your investment might be.
San Jose, San Francisco, Los Angeles and San Diego were all ranked in the top five, among 83 of the largest metro areas in the U.S. This is largely due to the relatively high home prices in those real estate markets. But it’s possible to get by with a down payment that’s below these metro-area averages.
Average Down Payments Highest in These California Metros
In June 2018, ATTOM Data Solutions (which owns RealtyTrac) published its latest “U.S. Residential Property Loan Origination Report” for the first quarter of 2018. Among other things, this report showed that several California cities ranked highest for average down payments. The Bay Area was well represented on this list, not surprisingly.
The results from this latest analysis showed that San Jose, San Francisco, Los Angeles and San Diego had some of the highest median and average down payments among those buying a house.
To quote the report:
“Among 83 metropolitan statistical areas analyzed for median down payments, those with the biggest median down payments for homes purchased in Q1 2018 were San Jose, California ($298,250); San Francisco, California ($180,000); Los Angeles, California ($122,000); Oxnard-Thousand Oaks-Ventura, California ($102,958); and San Diego, California ($80,100).”
Note: The amounts shown above represent the median down payment figures. The median is basically the midpoint for a data set. This means that half of all home buyers put down more than these amounts, while the other half put down less. The report also included averages, which is different from the median. And again, these California cities ranked high among the major metropolitan areas.
Here were the average down payments for each city, during Q1 2018:
- Los Angeles: $167,312
- Oxnard-Thousand Oaks-Ventura: $123,631
- San Diego-Carlsbad-San Marcos: $139,389
- San Francisco-Oakland-Fremont: $261,074
- San Jose: $386,584
These rankings go hand in hand with home values, for the most part. These metro areas have higher median and average down payments than most cities in America because they also have higher prices.
For instance, the median home price in San Jose has now risen above $1 million. The same goes for San Francisco. Los Angeles had a median price of around $675,000 as of summer 2018. San Diego was slightly below that. By contrast, the median home value for the nation as a whole was $216,000 during the same period.
Your Investment Could Be Much Smaller
Home buyers shouldn’t be discouraged by these figures. The median and average down payments shown above can be useful when comparing one area to the next, in terms of overall housing affordability. But these figures do not represent the minimum down payment allowable for different mortgage programs.
The amount you have to put down when buying a home could be much lower than these amounts, for a variety of reasons.
For example, some home buyers choose to put down at least 20% of the property value when buying a home. This is usually done to avoid mortgage insurance. When a borrower’s loan-to-value ratio exceeds 80%, mortgage insurance is typically required. That’s why some borrowers make down payments of 20% or more, to keep the LTV at 80% or below.
But you don’t necessarily have to put down that much money when buying in California. Some mortgage program have a minimum investment in the 3% range. FHA loans allows for a down payment as low as 3.5% for eligible borrowers, and the VA program allows home buyers to finance 100% of the purchase price.
On top of that, many of the mortgage programs in use today allow for down payment gifts from family members and other approved donors. This means that home buyers can use funds donated from a third party to cover some, or even all, of the minimum down payment.