How Much is Enough for a Down Payment?

How Much is Enough for a Down Payment?

The minimum down payment you face as a home buyer will depend on the type of mortgage, the lender and your finances as they stand right now.

First off, a down payment is what you will pay upfront for your home, usually as a percentage of the total price. For example, a 10 percent down payment on a $400,000 home is $40,000. You are responsible for the down payment that is agreed upon, and the lender pays the remainder. Then, you make payments to the lender to eventually pay off that borrowed amount.

Most mortgages require a down payment, except in the case of federally-back loans like USDA and VA loans.

Minimum Requirements

If you put at least 20 percent down on a house, this boosts your chances of being approved for a mortgage with a good rate. You can also avoid mortgage insurance, also known as PMI. You don’t have to put 20 percent down, though; you can put less. The minimum will depend on the type of loan you have:

FHA loans: You can put as little as 3.5 percent down on these loans from the Federal Housing Administration.

VA loans: You don’t have to put any down payment on these loans by the U.S. Department of Veterans Affairs, designed for current and veteran military service members and their eligible spouses.

USDA loans: You also don’t need a down payment with these U.S. Department of Agriculture’s Rural Development Program loans, designed for rural and suburban home buyers with income limits.

Conventional loans: You can put down as little as three percent, but you will pay PMI under 20 percent. For jumbo loans, you may have to put down between 20 and 40 percent.

It’s important to note that down payment requirements will vary by lender as well as your credit history.  You could snag an FHA loan down payment of 3.5 percent if your credit score is 580 or higher; however, if your credit score clocks in between 500 and 579, the minimum rises to 10 percent.

Why Put Down More?

While you may be attracted by the minimum amount you can put down, there are some very clear benefits to offering more. When you’re able to make a larger down payment, you get:

A more favorable interest rate

A lower monthly mortgage payment

Reduced upfront fees; reduced ongoing fees

No PMI over 20 percent

More built-up equity in your home

A lower down payment, on the other hand, means your lender is essentially taking a bigger risk on you. You may get a higher interest rate and less favorable terms.

Your real estate agent can discuss with you how much you should put down and why.

Contact Berkshire Hathaway Premier Properties

Contact Berkshire Hathaway Premier Properties today at 832-626-4889 if you’re curious about down payments for a new home. Let us connect you with the right agent to fit your needs and guide you through the process.

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