Knoxville Real Estate: What Is an Average House Down Payment?

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Whether you’re purchasing your first home or your fifth, the down payment probably plays into your decision. However, an “average” house down payment varies a great deal based on several factors.

How a down payment factors into your purchase price.

Although you probably have a dollar figure in mind as far as what you can afford for a down payment, in the end, the final down payment will be negotiated with the lender and calculated as a percentage of the final purchase price.

For example, if you plan to put down 10% of the price, and you have $20,000 to put down, then you can look at houses that are priced around $200,000. But this is just a simple equation – the factors below will help you figure out your down payment.

Conventional loans follow basic guidelines.

When a lender calculates your possible loan, they follow a formula of 80% of the appraised value, which is not necessarily the price you end up paying.

Generally, the lender prefers you to have 20% equity in the property going into the loan – that is, they want you to contribute 20% of the value of the property at the time of purchase. If the initial appraisal is lower than the asking price, you can use the appraisal to make a counter-offer using the appraisal as leverage.

If you choose a loan with a low down payment, the lender will require that you purchase private mortgage insurance (PMI), which pays off the loan if you’re not able to. Usually, the PMI stays in place until you’ve made payments to hit 20% equity, then the PMI is cancelled.

If paying PMI is preferable to a 20% down payment, you can work with your lender to get the lowest down payment possible; in today’s market, the lowest acceptable down payment is around 5%. Keep in mind that putting down more up front will benefit you in the long run.

The more you put down, the better.

No matter what the average house down payment is, putting the largest down payment possible gives you several important advantages.

A large down payment will:

  • Lower your interest rate
  • Increase your equity in the house
  • Motivate the lender to work with you and negotiate terms
  • Help your credit score during the qualification process

Even if lower down payment options are available to you, you may still want to consider paying more up front – it can save you a lot in the long run.

The average house down payment varies by loan type.

As you start shopping for a lender, you’ll notices that there are a variety of loan types that offer a range of down payment options. If you’re a first time homebuyer or are looking to minimize your down payment for other reasons, you can explore government-backed lending programs. These programs are designed to make it easier for people to purchase homes, and there are several options available, including:

  • FHA loans, which require a 3.5% down payment
  • USDA Rural Development loans, which allow for no down payment if you’re buying in a rural area and meet the guidelines
  • VA loans for active duty military or veterans, which also allows] for $0 down
  • The Great Start Program, which provides a 4% grant to help pay the FHA minimum down payment if you fall into the income and purchase price restrictions. The Tennessee Housing Development Agency provides info on this and other options that can help with your down payment

All of the home purchase programs are subject to qualifying criteria, buteven if you do qualify, that doesn’t necessarily mean you should take advantage of them. As we mentioned above, a larger down payment up front can result in lots of savings, including a lower interest rate over the life of the loan.

Now that you know roughly what down payment to expect and some of the factors you should consider as you plan, it’s time to start looking for your dream home!

Get in touch with Holloway-Westerling Group today to start the search – we have the experience to help you find exactly what you’re looking for.

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