Buyers drop bigger down payments to gain a competitive edge

As buyers face increased competition in U.S. housing markets, some are attempting to gain a competitive edge by offering a larger down payment.

"In many purchase situations, there are multiple offers, and the buyers who have the bigger down payment are more likely to win out,” Daren Blomquist, ATTOM Data Solutions’ senior vice president, told The Wall Street Journal.

The WSJ says that the average median down payment for homes bought with financing in the third quarter of 2017 rose to a high of $20,000, which amounts to 7.6 percent of the median sales price of $263,000 for that period, according to ATTOM's data. That's up from the 6.1 percent seen in the third quarter of the previous year.

When it comes to luxury homes, the down payments increase even more, ATTOM said. In Q3, the median down payment for homes worth over $1 million that were bought on finance was $386,500, which is 28.2 percent of the median sales price.

“If you want to play in the high-end market, you have to be able to pony up a bigger down payment,” Blomquist said.

Not all jumbo-mortgage lenders require large down payments, however. For example, BBMC Mortgage in Chicago allows qualified borrowers to put down as little as 5 percent on a jumbo mortgage up to $650,000. For loans up to $1 million, the lender has programs available that allow 10 percent down.

Mortgage rates are expected to increase in 2018 and that will impact how much buyers can afford. Lawrence Yun, chief economist at the National Association of REALTORS®, predicts the 30-year fixed-rate mortgage rate will rise to 4.5 percent by the fourth quarter of 2018—and to 4.8 percent by the end of 2019.