More Than Half of Buyers Now Put Down 20% or More

Buyers hoping to distinguish themselves amongst a pool of bidders are increasingly putting down more cash and waiving inspection and appraisal contingencies, according to data from the National Association of Realtors. The share of mortgages associated with a minimum 20% down payment increased to 52% in May, an increase of 12% in 10 years. Nearly one in every three first-time buyers placed a 20% or more down payment. Rising down payments result in a drop of FHA and VA-issued mortgages, which insure zero and low down payment options. Mortgages that conform to Fannie Mae and Freddie Mac guidelines made up 74% of mortgages issued in May compared to 65% in 2018 and 2019.

Meanwhile, the share of FHA-insured mortgages to total mortgages in fell to 14% in May 2021 from about 20% in past years. The share of VA-guaranteed loans has also decreased to 7% in May 2021 from about 10% in past years.

According to REALTORS®, sellers are wary of the appraisal and inspection process. REALTORS® have reported that buyers who make an offer using FHA or VA financing find it hard to compete against other buyers who are offering cash or using conventional financing.

"It is extremely difficult for FHA/VA buyers to get accepted in a multiple offer situation. They are on the bottom of the hierarchy"

"Buyers using VA Loans are being discriminated due to 'known low appraisals with VA loans' which is not right at all."

"VA Loans are at a complete disadvantage — sellers need to be offered an incentive to give more consideration to a VA Loan offer. There are a lot of misconceptions regarding VA appraisals and VA loans."

Appraisals present a hurdle for homebuyers with VA and FHA financing at a time when prices are rising fast and homes are selling swiftly with little inventory on the market. In May 2021, the total inventory of homes (unsold) on the market was equivalent to 2.5 months of the monthly sales pace, well below the ideal level of 6 months. Appraisals, which are based on comparable sales and/or automated valuation, will always lag behind the "real-time" price based on current demand-supply fundamentals. In May 2021, the median existing-home sales price rose at a record high of 24% year-over-year, the highest annual pace since 19693. VA appraisals take anywhere from 5 to 15 days4, but properties are typically on the market for 17 days.

Homebuyers are waiving appraisals in order to close the transaction quickly. REALTORS® reported that among contract contingencies waived by the buyers, the most common contingency that buyers waived was the appraisal contingency (28%) followed by the inspection contingency (25%).

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