Atlanta and Phoenix Home Buyers Have Smaller Down Payments

• Nationally, 43.2 percent of buyers put down 20 percent, a longstanding benchmark.
• 24.2 percent of buyers put down 5 percent or less.  The share is much higher in Atlanta, where 44.5 percent of buyers put down 5 percent or less, and Phoenix, where 36.9 percent do.
• Atlanta and Phoenix also have the smallest share of buyers who put down 20 percent or more when they bought a home. In Atlanta, it's 32.4 percent and in Phoenix, 31 percent.

With mortgage rates rising, the size of a down payment takes on even greater importance. It can make the difference between a monthly mortgage payment that's affordable and one that stretches a household's budget too thin. In the Zillow Group Consumer Housing Trends Report 2018, we asked home buyers nationally and in five major metro areas – Atlanta, Chicago, Washington, D.C., Phoenix and San Francisco – about their down payments, including how much they put down and where they got the money.

The down payment trends reflect home value differences across the metros, giving potential buyers a sense of how buying happens in their areas. For people in particularly competitive markets, it's an informational edge to know what you're up against and how others are handling what may be the largest investment of their lives.

A notable difference among the five metros is how much mortgage buyers put down – and how that compares to the national trend.

Nationally, 24.2 percent of buyers put down 5 percent or less. The share is much higher in Atlanta, where a whopping 44.5 percent of buyers put down 5 percent or less, and Phoenix, where 36.9 percent do. The median mortgage payment in both metros is $1,131 a month, which is lower than the median mortgage payments in Chicago ($1,336), Washington, D.C. ($1,850), and San Francisco ($2,158).^[1]

Atlanta and Phoenix also have the smallest share of buyers who put down the traditional 20 percent or more when they bought a home. In Atlanta, it's 32.4 percent and in Phoenix, 31 percent.

Interestingly, buyers in the three metros with higher monthly mortgage payments are more likely to put down 20 percent or more. In Chicago, it's 52.1 percent of buyers; in San Francisco, 50.7 percent of buyers; and in Washington, D.C., 43.8 percent. All three are above the national share of 43.2 percent of buyers who put that much down.

Most home buyers in the United States and each of the surveyed metros used savings for their down payments. For the U.S. as a whole, 70 percent of mortgage buyers use at least some savings for their down payments. In all five major metros that we examined, the share was similar or greater: 82.5 percent in San Francisco, 79.2 percent in Phoenix, 78.8 percent and Washington, D.C., 75.3 percent in Chicago and 73 percent in Atlanta.

After savings, previous home sales are the second most common source of funding for the average American down payment – a trend that holds in Atlanta, Chicago, and Washington D.C.

In San Francisco, investments come in second – with 36.3 percent of buyers using that source, the largest share of most metros examined and somewhat higher than the 26.3 percent of buyers nationally who put the sale of investments toward a home purchase.

In Phoenix, a gift from family and friends come in second: 20 percent of buyers there rely on that help from loved ones. Only 17.4 percent draw on proceeds from previous home sales — lower than the national average of 39.1 percent.

When making a down payment, 35.9 percent of rural buyers put down 5 percent or less. Comparatively, only 24.7 percent of suburban buyers and 16.9 percent of those buying homes in urban parts of the country do the same.

Putting down 20 percent or more is similar across urbanicity, but urban and suburban buyers are more likely to make down payments between 6 and 19 percent. In fact, 36 percent of urban buyers and 25.4 percent of suburban buyers do this, compared with 19.3 percent of rural buyers.

In general, urban buyers draw from a more diverse portfolio of funding than their rural and suburban counterparts. Savings still top the list: 80.6 percent of urban buyers finance at least part of their down payments with it. Additional sources include the sale of a previous home (55.5 percent), a gift from family or friends (54 percent), a loan from family or friends (50.7 percent), stock or other investments (50.2 percent), and drawing from retirement (48.4 percent). Buyers in Atlanta, Chicago, Washington, D.C., and San Francisco tended to have more diverse down payment portfolios than their rural American counterparts. Phoenix, on the other hand, was similar to rural America.

 

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^[1] Zillow analysis of the U.S. Census Bureau, American Community Survey, 2017 in inflation-adjusted 2018 dollars.

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