The Down Payment Reality Report

As more millennials reach the ages when they're considering buying their first homes, the dire predictions that they would be too burdened by student loans or are too fond of pricey treats like avocado toast to qualify for mortgages have not come true. Millennials (ages 18-34) plan to buy homes in the next five years in much greater numbers than Generation X (ages 35-54) or baby boomers (55+), according to a new NerdWallet study.

Coming up with a large sum of money for a down payment is one of the biggest obstacles to homeownership. To explore what millennials and other generations of Americans understand about down payments, how they overcome this stumbling block and what else might be keeping them from buying a home, NerdWallet recently commissioned an online survey of more than 2,000 U.S. adults conducted by Harris Poll.

"The study shows that there's a good deal of disagreement about how much you need to save for a down payment," says Tim Manni, mortgage expert at NerdWallet, "although that may be understandable, considering how many different loan options there are these days.

"It also showed that people are finding creative ways to pull that down payment together — and for millennials, in particular, that they would even make sacrifices like putting off weddings and having kids in order to save up that money."

Key findings

• Approximately 2 in 5 Americans (41%) have purchased a home in the past five years and/or plan to purchase a home in the next five years

• 48% of millennials said they plan to buy a home in the next five years, and they are much more likely to do so than other generations; 33% of Gen Xers and only 16% of baby boomers expressed the same intention

• 44% of Americans believe you need a down payment of 20% or more to buy a home

• 68% of Americans who do not currently own a home as their primary residence say they face an obstacle to buying a home now; 44% of Americans who don't own a home said a lack of down payment savings is the stumbling block

• 79% of Americans who plan to purchase a home in the next five years would be willing to make sacrifices to save for a down payment, such as delaying marriage and/or having kids

How much do people think they need for a down payment?

There’s a common belief that the amount required for a mortgage down payment is 20% of the home price. While 20% is the down payment needed to get a conventional mortgage and not pay any private mortgage insurance, or PMI, it’s far from a hard-and-fast requirement for qualifying for a mortgage. VA loans require no down payment; Fannie Mae and Freddie Mac have 3% down programs; FHA loans allow down payments as low as 3.5%; many banks and online lenders now offer their own low-down-payment mortgages; and several state and local governments offer down payment assistance programs to residents.

Despite the availability of low-down-payment options, nearly one-third of Americans (29%) believe that exactly 20% is needed for a down payment. Viewed by generation, 21% of millennials believe this is required, as do 27% of Gen Xers and 36% of baby boomers.

“While the highest proportion of millennials have a very accurate perspective on what amount is currently needed for a down payment — 24% of millennials think you need to put just 6% to 10% down — a similar percentage are way off, as 23% of millennials think you need to put more than 20% down,” Manni says. “While it’s hard to say whether this means millennials are savvy or confused about down payments, there is definitely some misinformation and confusion among millennials regarding how much money is actually required to purchase a home.”

How are people coming up with a down payment?

We asked what assets people had used — or expected to use — to pull together a down payment (respondents could select multiple options).

Relying on personal savings

Of those who bought a home in the past five years and don’t plan to purchase in the next five years[1], 59% had used personal savings for part or all of their down payment; 65% of millennials say they did this, while 51% of Gen Xers and 61% of baby boomers say the same.[2]

Of Americans who plan to buy a home in the next five years, 66% say they would use personal savings for a down payment. Millennials were more likely to say this than Gen Xers: 74% of millennials plan to use personal savings, compared with 58% of Gen Xers.

Relying on a spouse’s/partner’s savings

Prospective millennial buyers were also more likely than other generations to say all or part of their down payment would come from a spouse’s or partner’s personal savings: 37% of millennials say this, compared with 23% of Gen Xers and 17% of baby boomers.

Of those who bought a home in the past five years,[1] 28% used the savings of a spouse or partner for a down payment. Over a third (34%) of recent millennial buyers relied on their partner’s savings, while 24% of Gen Xers and 25% of baby boomers did the same.[2]

RELYING ON MONETARY GIFTS

Gifts from family members played a part in some down payment plans. Among those planning to buy within five years, 14% of millennials say they would use a family gift in their down payment, compared with just 10% of Gen Xers and 4% of baby boomers.

Among those who had purchased in the past five years,[1] exactly 14% of millennials used family gifts — the same proportion as prospective buyers — while about 1 in 5 Gen X and baby boomer recent purchasers (19%) used family gifts.

» MORE: How much down payment do you need to buy a home?

How long does it take to save?

Millennials take the longest to save for a down payment, our survey found. Members of this generation who purchased a home within the past five years[1] reported it took them 3.75 years, on average, to save for their down payment, while it took Gen Xers 3.42 years and baby boomers 2.75 years, on average.[2]

The 2016 Consumer Expenditure Survey by the Bureau of Labor Statistics showed similar results. Millennials save $7,624 per year while Gen Xers save $12,347 per year. Assuming a 10% down payment on a $323,300 purchase mortgage, it would take millennials 4.2 years to save, and Gen Xers 2.6 years to save. The data in this survey couldn’t be applied to the “average” baby boomer since a large portion are retired and not earning and saving at the same pace as the other generations.

What’s keeping people from buying a home?

According to our survey, 68% of Americans who don’t currently own a home report that something is keeping them from buying a home now. There are strong differences among the generations: Only 42% of baby boomers reported a barrier, compared with 73% of Gen Xers and 82% of millennials.

The top problems cited are not having enough money for a down payment (44%) and having debt (29%).