Research reveals buyers in the US can struggle to get a 20% deposit

The largest generation of home buyers in the United States are most likely to put down less than a 201% deposit and get the most money from friends or family to buy a property, new research shows,

While putting down a deposit of 20% is regarded as the norm in the residential real estate market, fewer than half of buyers do it, according to the housing trends research from property firm Zillow.

It found that first time buyers are more likely to cash out investments or use retirement funds toward a down payment while buyers in Atlanta are more likely to put down 5% or less than they are to put down 20% or more.

The research, which analyses home buyers nationally and in the five major metro areas of Atlanta, Chicago, Washington, Phoenix and San Francisco, points out that the size of a deposit can make the difference between a monthly mortgage payment that is affordable and one that stretches buyers too much.

Overall some 43% of buyers nationally put down 20% or more while Atlanta and Phoenix had the smallest share of buyers, at just over 30%, putting that much down.

Buyers in Phoenix were just as likely to put down 5% or less as they were to put down 20% or more while buyers in Atlanta, who put down less than 5% more often than they put down at least 20%, could open themselves to greater risk of becoming underwater on their mortgages, the research says.

Buyers in Chicago, San Francisco and Washington D.C., however, are at least as likely as the typical national buyer to put down at least 20%, the research also found.

The study also shows that it takes more than seven years for a typical American home buyer to save a 20% down payment on the typical valued home and in some markets it’s much higher.

In San Francisco, for example, it takes more than 18 years to save the $193,440 needed to buy a home but still, more than half of buyers there put down 20% or more.

Savings still account for the largest chunk of a deposit with 70% of buyers nationwide saying savings made up at least some portion of their down payment. Some 39% used the proceeds from a previous home sale, which typically accounted for about 20% of the total down payment.

But first time buyers have no such proceeds to rely on and 51% said their down payment included a gift and or loan from family or friends.

For millennials, the largest group of buyers and the most likely to use multiple funding sources for their down payment, about half used a gift or loan from family or friends for at least a portion of their down payment, accounting for about a fifth of the down payment on average. Other responses included investments and retirement funds.

‘Saving up for a down payment can be tough and requires good budgeting and long-term planning, especially when for many of us the cost of rent and everyday life outpaces what we’re able to put in the bank. Even if you don’t have plans to buy a home in the next year or two, it never hurts to start setting aside savings for a future home purchase,’ said Zillow senior economist Aaron Terrazas.

‘There are many mortgage options that require less than 20% down, but buyers should be careful that they don’t set themselves up to be underwater. Interest rates are rising, of course, but for many, waiting a bit longer and saving for a larger down payment might still be the way to go as they weigh their current stability and housing needs against their long term futures,’ he added.