Down payments drop for the first time in nearly 2 years
A new Redfin report suggests homebuyers may be seeking less expensive homes as ongoing economic concerns add pressure to large purchase decisions.
Homebuyer down payments have started to dip, a sign that those who are using loans to help finance their purchases are shifting their focus to less expensive homes.
New research published by Redfin on June 16 shows that the typical down payment in April was $62,468, down around 1% compared to a year ago. In percentage terms, the down payment was 15% of the home purchase price, a slight decline from 15.1% a year ago but still significantly higher than prior to the pandemic, when down payments were in the 10% range.
The last time dollar-amount down payments fell was in the summer of 2023 when home prices were also dropping. The current decline is occurring as home prices continue to rise, albeit at a slower rate compared to recent years.
Why down payments are falling: It's likely that people who are relying on financing are buying less expensive homes, according to Redfin. There has also been an uptick in buyers using FHA and VA loans, which require lower down payments.
Lingering uncertainty about tariffs and other economic concerns are also likely contributing factors. With these concerns in mind, "some house hunters taking out a mortgage may be seeking out cheaper homes so they have more money in their bank account for security," Dana Anderson, a data journalist at Redfin, wrote in the report.
The shift from a sellers market to the more balanced markets recently seen in many metro areas could also be factoring in. With more inventory in the market, some sellers may be willing to accept lower down payments in order to sell their home, Anderson suggested.
An uptick in FHA, VA loans: FHA and VA loans became more common during the market slowdown this spring. Redfin found that 15.3% of mortgage sales used an FHA loan in April, up from 14.2% a year ago. For VA loans, the share was 7.2% in April, up from 6.4% in April 2024.
The rise in FHA and VA loans is another sign of softening demand. When the real estate market was hot during the pandemic, sellers typically had several offers to choose from, and tended to accept offers with higher down payments, the report noted.
All-cash offers hold steady: With mortgage rates still elevated, many buyers are making all-cash offers for the homes that are selling. In April, the share of all-cash offers for homes sold was 30.7%, down from 31.6% one year earlier.