HomeIn a housing market where home prices and interest rates affect home affordability — the down payment assumes a crucial role in assisting homebuyers purchase a home in the United States.
The size of a down payment plays a crucial role in enhancing home affordability for homebuyers. A larger down payment results in a smaller mortgage, which, in turn, reduces monthly mortgage payments.
Although some mortgage types in the United States do not require any down payment at all. An important question still arises — how much down payment is needed to afford a home in the United States?
The 28/36 rule for home affordability
We must first establish the criteria for an affordable home. To help provide us with a starting point, we can rely on the 28/36 rule. According to this rule, housing costs should not exceed 28 percent of your gross monthly income, and total monthly debt payments should not surpass 36 percent.
Learn more: 28/36 Rule
We can take the median household income on a state by state basis and translate this into a maximum monthly mortgage payment. We will use the current mortgage rates in the United States as well as a 25-year amortizatino period while applying the 28/36 rule.
The median household income in the United States stands at $74,580. Applying the 28/36 rule, which recommends that no more than 28 percent of gross monthly income should go toward housing costs and no more than 36 percent toward total monthly debt, we find that the maximum affordable monthly mortgage payment is $1,740.
Considering a 6.5% mortgage rate and a 25-year amortization period, the maximum affordable mortgage amount calculates to $259,859. To purchase the median-priced home in the United States, which is valued at $432,812, a down payment of $172,953 (equivalent to 39.96% of the purchase price) would be necessary for it to be considered affordable based on the median household income.
What states require the most down payment?
The states that require the largest down payment are 1. California — $555,005; 2. Hawaii — $466,493; 3. District of Columbia — $345,506; 4. Washington — $342,419; and 5. Colorado — $310,476. There are only 16 states which require a down payment less than 20% to afford the median home price with the median household income.
Down payments needed for home affordability in each State
The max monthly payment is based on the state level median household income.
| State | Median Home Price | Max Monthly Payment | Max Mortgage Amount | Down Payment to be Affordable |
|---|---|---|---|---|
| Alabama | $277,300 | $1,398 | $208,783 | $68,517 |
| Alaska | $367,500 | $2,094 | $312,727 | $54,773 |
| Arizona | $454,600 | $1,714 | $255,976 | $198,624 |
| Arkansas | $256,300 | $1,260 | $188,174 | $68,126 |
| California | $852,200 | $1,990 | $297,195 | $555,005 |
| Colorado | $623,800 | $2,098 | $313,324 | $310,476 |
| Connecticut | $422,500 | $2,117 | $316,162 | $106,338 |
| Delaware | $349,500 | $1,884 | $281,364 | $68,136 |
| District of Columbia | $699,900 | $2,373 | $354,394 | $345,506 |
| Florida | $421,900 | $1,525 | $227,750 | $194,150 |
| Georgia | $375,600 | $1,580 | $235,964 | $139,636 |
| Hawaii | $783,700 | $2,124 | $317,207 | $466,493 |
| Idaho | $477,400 | $1,694 | $252,989 | $224,411 |
| Illinois | $295,900 | $1,820 | $271,806 | $24,094 |
| Indiana | $255,900 | $1,634 | $244,028 | $11,872 |
| Iowa | $231,600 | $1,781 | $265,982 | $-34,382 |
| Kansas | $266,500 | $1,704 | $254,482 | $12,018 |
| Kentucky | $257,100 | $1,304 | $194,745 | $62,355 |
| Louisiana | $254,200 | $1,361 | $203,257 | $50,943 |
| Maine | $391,000 | $1,754 | $261,950 | $129,050 |
| Maryland | $429,500 | $2,525 | $377,094 | $52,406 |
| Massachusetts | $634,600 | $2,183 | $326,018 | $308,582 |
| Michigan | $255,700 | $1,610 | $240,444 | $15,256 |
| Minnesota | $357,000 | $2,109 | $314,967 | $42,033 |
| Mississippi | $239,200 | $1,134 | $169,356 | $69,844 |
| Missouri | $260,700 | $1,669 | $249,255 | $11,445 |
| Montana | $517,500 | $1,703 | $254,333 | $263,167 |
| Nebraska | $286,900 | $1,828 | $273,001 | $13,899 |
| Nevada | $451,400 | $1,688 | $252,093 | $199,307 |
| New Hampshire | $483,200 | $1,983 | $296,150 | $187,050 |
| New Jersey | $509,400 | $2,155 | $321,837 | $187,563 |
| New Mexico | $352,800 | $1,316 | $196,537 | $156,263 |
| New York | $539,000 | $1,771 | $264,489 | $274,511 |
| North Carolina | $377,600 | $1,518 | $226,704 | $150,896 |
| North Dakota | $275,800 | $1,837 | $274,345 | $1,455 |
| Ohio | $238,600 | $1,575 | $235,217 | $3,383 |
| Oklahoma | $240,300 | $1,480 | $221,029 | $19,271 |
| Oregon | $513,500 | $2,025 | $302,422 | $211,078 |
| Pennsylvania | $285,400 | $1,685 | $251,645 | $33,755 |
| Rhode Island | $483,300 | $1,882 | $281,066 | $202,234 |
| South Carolina | $385,800 | $1,441 | $215,205 | $170,595 |
| South Dakota | $316,000 | $1,568 | $234,172 | $81,828 |
| Tennessee | $387,500 | $1,526 | $227,899 | $159,601 |
| Texas | $352,000 | $1,742 | $260,158 | $91,842 |
| Utah | $561,400 | $2,235 | $333,784 | $227,616 |
| Vermont | $429,000 | $1,684 | $251,496 | $177,504 |
| Virginia | $458,200 | $1,987 | $296,747 | $161,453 |
| Washington | $654,100 | $2,087 | $311,681 | $342,419 |
| West Virginia | $271,000 | $1,224 | $182,797 | $88,203 |
| Wisconsin | $315,100 | $1,711 | $255,528 | $59,572 |
| Wyoming | $467,450 | $1,705 | $254,632 | $212,818 |
| United States | $432,812 | $1,740 | $259,859 | $172,953 |
Source: FRED, Redfin