Millennials Most Likely to Put Less Than 20 Percent Down Payment

According to new Zillow research, forty-three percent of U.S. homebuyers nationally put down 20 percent or more. Atlanta and Phoenix had the smallest share of buyers -- at just over 30 percent -- putting that much down. Buyers in Phoenix were just as likely to put down 5 percent or less as they were to put down 20 percent or more. Even more concerning are buyers in Atlanta, who put down less than 5 percent more often than they put down at least 20, which opens them up to greater risk of becoming underwater on their mortgages. Buyers in Chicago, San Francisco and Washington, D.C., however, are at least as likely as the typical national buyer to put down at least 20 percent.

Zillow research shows it takes more than seven years for a typical American home buyer to save a 20 percent down payment on the typical-valued home. In some markets it's much higher; San Francisco, for example, pencils out to more than 18 years to save the $193,440 needed. Still, more than half of buyers there put down 20 percent or more. So how do they manage that significant barrier to home ownership?

According to Zillow's latest Consumer Housing Trends Report, bank savings still account for the largest chunk, with 70 percent of buyers nationwide saying savings made up at least some portion of their down payment. Second (39 percent) was proceeds from a previous home sale, which typically accounted for about 20 percent of the total down payment. What does that mean for first-time buyers who don't have that equity nest egg? Fifty-one percent said their down payment included a gift and/or loan from family or friends.

For millennial buyers - the largest group of buyers and the most likely to use multiple funding sources for their down payment -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.

"Saving up for a down payment can be tough and requires good budgeting and long-term planning, especially when for many of us the cost of rent and everyday life outpaces what we're able to put in the bank. Even if you don't have plans to buy a home in the next year or two, it never hurts to start setting aside savings for a future home purchase," said Zillow senior economist Aaron Terrazas. "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. 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."