One of the first hurdles that potential homeowners must overcome is saving up a down payment. It can take years, depending on the home prices in your area and how much you want to put down. Down payments are usually described as a percentage of the purchase price. How much is required for a down payment on a house?
The amount needed for a house down payment depends on the mortgage program, home price, borrower qualifications, and lender requirements. A 20% down payment is not required for all mortgages.
Some conventional loan programs may allow qualified borrowers to put down as little as 3%. FHA loans may allow a down payment as low as 3.5%, while eligible VA and USDA borrowers may qualify for financing with no down payment according to Consumer Financial Protection Bureau.
The down payment is only one part of the money needed to purchase a home. Closing costs, prepaid expenses, and other upfront costs should also be included when estimating the total cash needed to buy a home.
What Is a Down Payment?
A down payment is the portion of a home’s purchase price paid upfront by the buyer. The remaining amount is typically financed through a mortgage.
For example, if a home is purchased for $400,000 and the buyer makes a 10% down payment, the down payment would be $40,000. The remaining purchase price would be financed through the mortgage, before accounting for other transaction costs.
A higher down payment generally means a lower loan amount. A lower down payment means more of the purchase price is financed.
The appropriate down payment depends on the loan program and the buyer’s overall financial situation.
How Much Down Payment Is Required to Buy a House?
There is no single minimum down payment for every mortgage.
Different loan programs have different requirements. The minimum amount may also depend on factors such as credit history, income, debt, property type, occupancy, and other underwriting criteria.
Common mortgage options include conventional loans, FHA loans, VA loans, and USDA loans.
A Conventional Loan with PMI
Some conventional mortgage programs may allow qualified borrowers to purchase a home with a down payment as low as 3%.
A conventional loan with less than 20% down will generally require private mortgage insurance (PMI). PMI protects the lender against losses if the borrower does not repay the loan as agreed. It does not provide financial protection to the borrower.
PMI adds to the cost of a mortgage, but it can allow a buyer to purchase a home without saving 20% of the purchase price first. For many conventional loans, PMI can be removed after the borrower builds sufficient equity, subject to the requirements of the specific loan.
FHA Loan
An FHA loan may allow a down payment as low as 3.5%. FHA loans also have mortgage insurance requirements and other program-specific costs. The actual amount required depends on the borrower’s qualifications and the applicable FHA guidelines.
VA Loan
VA loans are available to eligible veterans, active-duty service members, certain members of the National Guard and Reserves, and some surviving spouses.
Eligible borrowers may be able to purchase a home with no down payment. VA loans also do not require monthly private mortgage insurance.
A VA funding fee may apply depending on the borrower’s circumstances. Certain borrowers may qualify for an exemption.
USDA Loans
The USDA Single Family Housing Guaranteed Loan Program may provide 100% financing for eligible borrowers, meaning a down payment may not be required.
USDA loans are subject to property location, household income, and other eligibility requirements. The program also includes specific fees that should be considered when comparing financing options.
Can You Buy a House Without a Down Payment?
Some eligible borrowers may be able to purchase a home without a down payment.
VA and USDA loan programs can offer no-down-payment financing for borrowers who meet the applicable eligibility requirements.
No-down-payment financing does not mean there are no costs associated with purchasing a home. Buyers may still have closing costs, prepaid expenses, and other transaction-related costs.
Loan eligibility and available financing should be reviewed before determining how much cash is required to purchase a property.
Understanding Your Down Payment Options
The minimum down payment for a home depends on the mortgage program and the borrower’s qualifications. Some conventional loans may allow down payments as low as 3%, FHA loans may allow 3.5%, and eligible VA and USDA borrowers may qualify for no-down-payment financing.
The down payment should be evaluated together with the loan amount, monthly payment, mortgage insurance, closing costs, and cash reserves.
Lock It Mortgage can help homebuyers compare available mortgage programs and understand how different down payment options may affect their overall financing.
