How Much Do I Need to Put Down on a House
A down payment is an upfront installment or part of a larger amount paid on a purchase. The remainder is paid off in separate installments, usually with interest, as part of a loan. The down payment represents your initial ownership stake in the home you continue to make payments on. While the idea is simple, there is a lot that goes into making the decision of how much money to put down on your home. Before deciding how much or how little you pay upfront, it is helpful to understand a few key factors:
Minimum Down Payment Requirements
Different lenders have different requirements when it comes to the down payment on a home loan.
- FHA loans, backed by the Federal Housing Administration, require only 3.5% down with a 580 credit score.
- VA loans, insured by the U.S. Department of Veterans Affairs, for current and veteran military service members and eligible surviving spouses, have no down payment requirement.
- USDA loans, guaranteed by the U.S. Department of Agriculture's Rural Development Program, do not require a down payment.
- Most conventional loans (those not insured by the government), require a minimum down payment of 20%.
Lenders look favorably on borrowers who are able to make a sizeable down payment, as it gives them peace of mind. FHA-approved lenders feel more secure accepting a smaller down payment since they are insured by the government agency, and the lenders are protected in the case borrowers are unable to pay back the mortgage amount.
Mortgage Insurance
Applying for a conventional mortgage may mean paying for Private Mortgage Insurance (PMI). This is charged to borrowers when they are unable to make the minimum down payment (usually 20%) but still want to apply for it. While this option helps qualify for the loan, it also increases the cost of the loan itself. Borrowers can make a lower down payment upfront, but the monthly PMI premium is added to the mortgage payments. It is also important to remember that PMI does not protect the borrower. Instead, it protects the lender from losses if the borrower defaults on the loan. In most cases, borrowers will only have to pay for PMI until they have amassed enough equity in the home (usually up to the 20% requirement), and can have the premium dropped at that point. Talk to your loan officer to make sure this is an option.
How Down Payments Can Affect Your Interest
The amount of money directly impacts the amount of interest you pay over the life of the loan. Making a larger down payment means paying less in interest, since you are borrowing less money. Imagine that you are buying a $200,000-home with a down payment of $20,000. You will be paying interest on a $180,000 loan. (200,000 – 20,000). However, if you pay only $10,000 upfront, you will be paying interest on a $190,000-loan instead.
Trying to calculate how much money to put down on your home can be daunting, but having the information you need makes the decision easier. It is important that as a potential homebuyer that you do your research and learn about your options, including Down Payment Assistance Programs. Head to www.fha.com to for a comprehensive list of programs for each state.
------------------------------
RELATED VIDEOS:
Do What You Can to Avoid Foreclosure
Homes Financed With FHA Loans Must Be Owner Occupied
FHA Programs for First-Time Homebuyers
More FHA Loan Articles
September 27, 2022When you buy a home with an FHA mortgage, cash for closing costs and your down payment is required. It would be easy to assume you simply give the lender cash in the specified amount and that’s the end of the story.
September 13, 2022When you are approved for an FHA One-Time Close Construction loan, you get a single loan that pays for both the costs to build the house, and serves as the mortgage. One application, one approval process, and one closing date.
September 7, 2022Did you know there is an FHA loan option that lets you build a house from the ground up? You can use this mortgage to build on land you own or on land you buy as part of the loan. But you will want to address some issues comparing construction loan options.
August 23, 2022Sometimes when buying a home there may be a question of surplus or excess land. You likely won’t face this issue when buying a condo unit, but for other types of purchases, this may be an important factor in the appraisal process.
August 4, 2022Your lender is required to make sure you can realistically afford your mortgage, and that means verifying that your income is stable, reliable, and will continue after your mortgage has closed. What some don’t realize about this process is that there are standards for verifying income.
