Photo: Robert Clark

American Millennials are using their savings to fund a downpayment but most end up putting far less than the standard 20 percent down, according to the recent 2018 Consumer Housing Trends Report by the listing site Zillow.

“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 Aaron Terrazas, Zillow senior economist, in a statement.

The 2018 Consumer Housing Trends Report analyzed American homebuyers both nationally and in five major metro areas – Atlanta, Chicago, Washington, DC, Phoenix and San Francisco – and their decisions about their down payments, including how much they put down and how they funded their downpayment.

Although 20 percent down is the accepted industry standard in the mortgage business, just 43 percent of buyers nationally said they put down 20 percent or more when purchasing. Some 24 percent of all buyers said they put down 5 percent or less.

Of the buyers surveyed, Millennials were the most likely cohort to put down less than 20 percent.

“If a seller has three offers, one with 25 percent down, one with 20 percent and one with 3 percent, which offer do you think they’ll accept,” asks Bridget Harvey, a licensed real estate associate with Douglas Elliman.

Buyers in Atlanta were more likely to put down 5 percent (or less) than they are to put down 20 percent or more compared to the other metros included in the study.

Larger downpayment amounts not only make prospective buyers more appealing to the banks but can have other significant financial benefits as well — like staying above water on your mortgage.

“Putting 20 percent or down keeps the monthly payment lower by saving on interest and the added burden of mortgage insurance,” Zack Tolmie, a home lending officer with Citibank, tells Livabl.

Zillow estimates that it could take the typical buyer around seven years to save enough for a downpayment. But in some pricier markets, like San Jose, CA, it could take over 20 years for buyers to save the $200,000 needed for a downpayment.

Overall, most buyers are using their personal savings as a funding source of their downpayment. Nationally, 70 percent of mortgage buyers used at least “some” savings for their downpayments.

And in the five major metros Zillow examined, the share was similar or even greater: 82.5 percent in San Francisco, 79.2 percent in Phoenix, 78.8 percent and Washington, D.C., 75.3 percent in Chicago and 73 percent in Atlanta.

Other popular sources of funding were a previous home sale, gifts, and liquidation of investments or stocks.

And for Millennial buyers — the largest cohort of buyers and the most likely to use multiple funding sources for a down payment — about half used a gift or loan from family or friends for at least part of their downpayment. Gifts and loans accounted for around one-fifth of the total downpayment on average.

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