Median income families in L.A. need ‘nearly impossible’ down payments to afford a

The old adage that you need a 20% down payment to afford a home is a massive underestimation for the average buyer in 2024, according to analysts at Zillow.com.

New data released from the real estate listing platform shows that an American family making the national median income would need closer to a 35% down payment to be able to afford their monthly mortgage bill.

For Los Angeles residents, the outlook is even more bleak.

According to Zillow, a median-income household in Los Angeles would need a “nearly impossible” down payment of 81.1% to afford the payments on a “typical home.” That, Zillow says, is the highest in the nation.

The median price of a typical home in L.A. is about $962,000, meaning that down payment would need to come in at around $780,000.

Other Southern California cities don’t fare much better either. Buyers would need $358,926 (61.4%) for a down payment on a home in Riverside and San Diego buyers would need $723,527 (75.5%).

Things aren’t much better in Silicon Valley where prospective San Jose buyers would need a down payment of 80.9% to afford their monthly payments. That would be around $1.3 million just for the down payment — higher than the “typical home” value of every other major market in the U.S.

Other large metro areas with similarly outrageous down payment requirements include New York City (75.3%), Miami (64.5%), Boston (61.7%) and Seattle (61.3%). 

The old reliable 20% down payment advice remains applicable in 2024 in only 10 of the 50 top housing markets in the nation, Zillow says, most of which are in the Midwest.

That’s not to say that the average buyer absolutely needs to have a massive down payment if they want to be qualified for a home in a pricier market. But rather, a median-income family would significantly struggle to make their monthly payment, including principal and interest, property taxes and insurance, without one.

Higher interest rates than in previous years is one of the big contributors to soaring monthly mortgage bills, Zillow says. Historic home prices are another.

“Down payments have always been important, but even more so today. With so few available, buyers may have to wait even longer for the right home to hit the market, especially now that buyers can afford less. Mortgage rate movements during that time could make the difference between affording that home and not,” said Skylar Olsen, chief economist at Zillow.

If you’re thinking about really committing to saving as much as possible, clipping coupons and making coffee at home, prepare for a long, long wait.

Assuming that a median income household in Los Angeles set aside 10% of their income every month and put it into an account earning a guaranteed 4% return, it would still take more than 36 years, yes, 36, to obtain that 81% down payment figure.

So, enjoy that avocado toast.

The most likely pathway to home ownership? Gifts.

The real estate experts say it’ll be almost impossible for the average person in a pricey market to put down enough money to make their monthly bill manageable unless they are the recipient of gifts, inheritance, a stock windfall, or the like.

Zillow says 43% of last year’s home buyers used a gift or partnership from family or friends for at least part of their down payment.

Down payment assistance, usually provided by the government, can also help ease that burden.

Unfortunately for the average American looking to buy, some programs can have strict limitations to who qualifies for down payment assistance, and many programs are often underfunded.

In the Los Angeles metro area, the average amount of down payment assistance available for qualified buyers is just under $42,500, Zillow said.

The real estate platform says it has a “longstanding partnership” with Down Payment Resource, a service that helps potential buyers find down payment assistance and check to see if they qualify.

For the complete down payment report from Zillow, click here.