20% down? How to help buyers who don’t know that’s a myth 

Down-payment size is one of the biggest decisions buyers make while investing in a home — and most believe they need to put down more than they actually do, according to the National Association of Realtors.

While there are signs that the market is shifting in buyers' favor, affordability remains a pressure point for many as home prices and mortgage rates remain high. A median-income household would need to earn over $17,000 more annually to afford a typical home even with a 20% down payment, according to a Zillow analysis published on June 30.

Down payments that large aren't routine these days, but most buyers don't realize this because they aren't turning to agents with their home financing questions. As NAR noted in a June 30 analysis of down payment data, 97% of NAR members have worked with clients who sought home financing advice from family instead of their agent.

As an agent, there are many opportunities throughout the homebuying process to offer a client guidance — and that includes strategies for financing their purchase. From correcting down payment assumptions to shedding light on loan types that require paying less up front, educating a client on their options is one way that an agent can build trust and offer value.   

Today's typical down payment: There is a common misconception among buyers that they need a down payment equal to 20% of their home's purchase price. However, the typical down payment size for first-time buyers has ranged from 6-9% since 2018, according to NAR, and hasn't topped 10% in more than three decades.

The typical down payment for repeat buyers tends to be larger, NAR noted, and nearly doubled in the past decade amid housing equity growth. Last year's typical down payment size for these buyers was 23% — a 10% jump from 2014.

NAR's data appears to be in line with a recent report from Redfin, which found that the typical down payment was 15% of the home purchase price when data for first-time and repeat buyers was combined.

Where is the money coming from? Most first-time buyers (69%) rely on savings to fund their down payments, and 1 in 4 use gifts or loans from family members or friends. Seven percent use their inheritance — a record high, according to NAR.

More than 1 in 5 first-time buyers (21%) also turn to other financial assets, such as stocks, bonds, 401(k)s and cryptocurrency. This share has doubled since the turn of the century and "may be due to the increased number of younger investors or wealthier first-time buyers in the housing market," wrote Jessica Lautz, NAR's deputy chief economist and vice president of research.

Popular loans for first-time and repeat buyers: While a significant share of buyers make all-cash offers, NAR data indicates that 74% of all buyers — and 91% of first-time buyers — investing in a primary residence find other ways to afford their purchase.

Majorities of both groups use conventional loans, and many (29% of first-time buyers and 10% of repeat buyers) use FHA loans, which offer down payments as low as 3.5%. About 1 in 10 (9% of first-time buyers and 11% of repeat buyers) use VA loans, which don't require down payments.