According to a new Zillow analysis, median income homebuyers need to put down $127,750 or 35.4% to comfortably afford a typical US home. That’s a stark contrast from five years ago when mortgage rates were hovering just above 4% and the typical home was worth 50% less – a median income buyer could comfortably afford that home with no money down.
For a borrower to "comfortably afford" the monthly mortgage payment, the Zillow analysis applies the standard that the monthly payment of principal and interest for the typical home should comprise no more than 30% of the typical income.
A typical US home is valued at $360,000, according to Zillow, so a household earning the median income for the past 12 years would need to save 10% of their income each month with a 4% annual return in order to save up $127,750. Breaking down the math, it’s clear why 43% of last year’s buyers used a gift from family or friends for a portion of the down payment – the highest share since at least 2018, Zillow reported.
"Homeownership is the primary source of net worth and generational wealth for most Americans, and declining affordability is making it harder for average earners to get their foot in the door of an entry-level home," said Down Payment Resource Founder and CEO Rob Chrane. "Luckily, there are more than 2,373 down payment assistance programs nationwide with at least one program in every county and 10 or more programs available in 2,000 counties."
Despite the expansion of down payment assistance programs, some regions in the country are more affordable. In 10 major metropolitan areas, according to Zillow's analysis, the typical home is affordable to a median-income household with less than 20% down. Pittsburgh has the most affordable housing market; a median-income household could afford the monthly payment on a typical home with no money down.
On the other end of the spectrum, California boasts the least affordable metros. A median-income household in San Jose would need to put down more than $1.3 million to afford the mortgage payments on a typical home. That down payment is more than the typical home is worth in every other major market across the country. In Los Angeles, a median-income household would need an 81.1% down payment ($780,203) to afford the typical home, the highest in the country.
The Zillow analysis believes those figures explain why many California metros have seen population losses since 2020 as long distance movers target areas with more affordable housing.
Zillow also highlights the critical role of down payment assistance programs, stating that in Minneapolis, the average amount of down payment assistance available across the metro is just under $22,750, according to data from Down Payment Resource. A median-income buyer in Minneapolis without down payment assistance would need a 27% down payment to comfortably afford the typical home. By using down payment assistance, they only need to put 21% down.
