How Much Down Payment Do I Need for a Home?

One of the most common questions that comes up as people start looking to purchase a new home is, “How much down payment do I need?” The actual amount that is required will depend on the type of loan you are planning to get, and your own personal financial situation.

Understanding Down Payments

A down payment is cash you give to the lender when you get your home loan. It reduces the total amount you will borrow, and provides immediate equity in your new home. The down payment is calculated as a percent of the total purchase price, so a 20% down payment on a $300,000 loan would be $60,000, and you would borrow the remaining $240,000. For lenders, the down payment represents an initial ownership stake in the home, and can protect against future housing market fluctuations, making it a safer investment for them.

Minimum Down Payment Requirements

The minimum amount a lender requires you to put down depends on the type of loan.

It is very important to know that some mortgage loans are available without any down payment if you meet certain qualifications!!

Common Loan Types:

• Conventional 15- or 30-year fixed-rate mortgage: 10-20%
• Fannie Mae or Freddie Mac Conventional mortgage: 3-20%
• FHA loans backed by the Federal Housing Administration: 3.5%
• VA loans through the Department of Veterans Affairs: None
• USDA loans through the Rural Development Program: None

Most minimum down payment amounts are only available to borrowers with a high enough credit score, so your credit score may play into your down payment requirement, it just depends on the situation. There are also multiple options to pay for your down payment, don't let those two words discourage you from pursuing homeownership!

Should You Put More Down?

Just because you have more cash to put down than the minimum requirement to qualify for your loan doesn’t necessarily mean that you should put a bigger down payment, but in some cases that might make sense.

A higher down payment can get you:

• Lower interest rate
• Lower up-front fees for the mortgage
• Lower monthly payment by avoiding mortgage insurance (PMI)
• More equity in your home immediately

While these are all great benefits, there are other factors to consider before you put down more than is required by your loan.

• Savings: it’s always a good idea to have some money set aside in savings for emergencies, so if putting more money down will eliminate your savings, it may be a better idea to put the required down payment and keep the rest in savings.
• Cash on hand: there can be many costs after buying a new home, such as landscaping, appliances like a refrigerator or washer/dryer, or purchasing window coverings. If you use all your cash for a bigger down payment, you may not have enough for these costs after your move.

Create a budget of savings and costs after you move in to make sure you have enough before deciding on your down payment.

Call Integrity First Lending today to discuss your home loan options and down payment requirements.