They might be the largest generation of homebuyers in the market today, but fewer than half of millennial buyers put down 20 percent down payment on their first homes, according to a study by Zillow.
For the study, Zillow surveyed homebuyers nationally and in five major metro areas about their down payment decisions including how much they put down on their homes and where they got the money from.
While 43 percent of buyers nationally put down the conventional 20 percent or more in down payment, the least number of buyers following this rule was in Atlanta and Phoenix at just a little above 30 percent, the survey revealed.
Among buyers in these two cities, Atlanta homebuyers were likely to put down less than 5 percent more often than at least 20 percent, opening them to a greater risk of becoming underwater on the mortgage. Buyers in Chicago, San Francisco, and Washington, D.C., the other three of the five metros in the survey, were at least as likely as the typical national buyer to put down at least 20 percent.
"There are many mortgage options that require less than 20 percent down, but buyers should be careful that they don't set themselves up to be underwater," said Aaron Terrazas, Senior Economist at Zillow. "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."
In terms of the time taken to save up for their down payment, the survey revealed that it took more than seven years for homebuyers to save the amount for a 20 percent down on an average home.
When asked how they looked to fund the down payment, savings accounted for the largest chunk with 70 percent buyers nationwide saying savings made up at least some portion of their down payment. Approximately 39 percent said that they used the proceeds from a previous home sale towards their down payment. Among first-time homebuyers, 51 percent said that their down payment amount included gifts or loans from friends and families.
Among millennials, about half used a gift or loan from family or friends for at least a portion of their down payment, accounting for about one-fifth of the down payment on average. Other responses included investments and retirement funds.