What Down Payment Do I Need to Buy a House?

Buying a house is a big step and is often viewed as a significant part of the “American dream.” Coming up with the money to put a down payment on a house, however, can sometimes be a challenge for prospective home buyers. To get closer to reaching your goal of buying a house, consider the following information to determine what down payment you need to buy a house.

What is a down payment?

Let’s start with the basics: a down payment is the amount of cash you pay upfront to lay a stake in a large purchase like a house. Down payments are usually expressed as a percentage of the price, and the most common down payment percentage referenced is 20%.

Your down payment on a house is a large, upfront contribution you make toward the purchase. Your lender then covers the rest of the money required to purchase the property in the form of a home loan or a mortgage.

Most mortgages require a down payment, but there can be exceptions, particularly for those purchasing a house through the US Department of Veterans Affairs (VA loan) or a USDA loan, both of which are backed by the federal government.

Is there a minimum down payment requirement?

The amount of cash you will need to put towards a down payment varies. A general rule of thumb is that the more you put down on a house, the better your chances of getting approved for a mortgage at a favorable rate. Additionally, putting at least 20% down means you can avoid paying mortgage insurance.

While putting 20% down is ideal, several circumstances allow you to put down less than that amount, depending on what kind of mortgage you have. Here are some common loan types and corresponding down payment information:

  • FHA loans: these are backed by the Federal Housing Administration and may require just 3.5% down.
  • VA loans: these loans are guaranteed by the U.S. Department of Veterans Affairs and may not require a down payment. These loans are available to veterans and current military service members and their eligible surviving spouses.
  • USDA loans: these loans have no down payment amount required and are backed by the U.S. Department of Agriculture’s Rural Development Program. Rural and suburban homebuyers who meet certain income limits and other criteria can apply for USDA loans.

It may be possible to obtain a conventional mortgage with as little as 3% down via Fannie Mae HomeReady and Freddie Mac Home Possible, though it’s worth noting that these loans are not backed by the federal government.

Other lenders may have other down payment requirements, which often correspond with the borrower’s credit history. When considering how much to put as a down payment on a house, you should account for your unique financial situation and goals. In general, the more you can put towards a down payment, the lower your monthly mortgage payment will be. Putting too much of your cash toward a down payment may leave you “cash poor” after you move into your new home. Ideally, you can find the right balance for your needs that puts you in your new home without leaving you struggling for money for daily expenses.

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