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How Much of a Down Payment Do I Need

Home Closing

When you are buying a home, one of the most important decisions you will make is how much money you will put down as a down payment. This number affects your monthly mortgage payments and the total amount of interest you will pay over the life of the loan. In this blog post, we will discuss how much money you need to put down for a mortgage loan and some of the factors that influence this number.

What is the standard conventional mortgage down payment?

Typical conventional loans require a 20% down payment. This increases your chances of approval.

If your home is $300,000, you will need $60,000 for a down payment to qualify for a conventional loan by Fannie Mae and Freddie Mac. This option conforms to the widest range of buyers and properties and is the most popular.

There are some loan products that require less than 20%. And if you put less than 20% down, you will be required to get private mortgage insurance (PMI) that carries other fees that get wrapped into your mortgage.

Factors to Consider

There are many factors that can influence how much money you need to put down on a mortgage loan. Some of these factors include:

  • The type of loan you are getting
  • Your credit score
  • The price of the home you are buying
  • Your employment history
  • Your income and debt levels

If you have a good credit score and steady employment, you may be able to get away with a lower down payment.

Self Employed Individuals

If you are self-employed or have a less than perfect credit history, you may be required to put down a higher down payment.

The price of the home you are buying is also a factor. If you are buying a more expensive home, you will need to put down a higher down payment.

What is the minimum down payment for mortgages?

The minimum down payment for a mortgage is usually between 0% and 20%, depending on the type of loan.

Down Payment Assistance for Mortgage

There are down payment assistance programs available that vary from state to state, and even from county to county. Do your due diligence to see if you can qualify for any assistance.

Some benefits can be:

  • Down payment grants that do not need to be repaid
  • Attractive 30-year interest rates
  • No first-time buyer requirements
  • County and income limits
  • 0% interest or low monthly rates with no monthly payment or a balloon payment at the end of a 10-year term, etc.

These laws can vary widely and greatly. There are approximately 2500 programs available from local, state agencies and nonprofits.

When is your mortgage down payment due?

Your mortgage down payment is due at closing. This is the date when you sign the final paperwork and the home officially becomes yours.

If you are getting a loan from a bank or other financial institution, they may require that you make a down payment before they will give you the loan.

You may also be required to pay some of your down payment at the time of your loan application. This is usually a small amount, called an earnest money deposit, that shows the seller you are serious about buying their home.

Can you get a mortgage with no down payment?

Yes, there are some programs that allow you to get a mortgage with no down payment. These are typically government-backed loans, such as FHA or VA loans.

You may also be able to get a conventional loan with a low down payment if you have a good credit score and steady employment.

If you put less than 20% down, you will be required to get private mortgage insurance (PMI) that carries other fees that get wrapped into your mortgage.

VA Loan Down Payment

Veteran’s assisted loans can be a 0% down and backed by the US government. This is available to current or former military personnel and their spouses.

There are specific requirements for a VA loan:

  • 90-day consecutive service for wartime, or
  • 181 days of peacetime, or
  • 6 years in the national Guard, or
  • you are a spouse of a service member who perished on duty
  • A credit score of 580 to 620 is also required

FHA Loan Down Payment

Loans insured by the Federal Housing Administration are an option for low to middle income borrowers with less-than-ideal credit scores.

You will be required to carry private mortgage insurance since your down payment will be less than the 20%.

Private mortgage insurance (PMI) is there to protect the lender in case you stop making payments on the loan. Ask your lender what choices they offer. This PMI can be proposed as a one-time up-front fee, a monthly premium fee or both an upfront and monthly fee.

  • FHA loans can require as little as 3.5% down with a 580 or higher credit score.
  • A minimum credit score of 580 is required
  • If you can put a 10% down payment then you can be approved within the 500-579 range
  • Requires private mortgage insurance premiums

USDA Loan Down Payment

U.S. Department of Agriculture mortgage program is for low to very low-income families who cannot qualify for a conventional loan. This is not a widely used loan option.

  • S. citizen or legal permanent resident
  • 0% down loan
  • Typically require 640 credit score
  • Has to be a primary residence
  • Will have private mortgage insurance premiums
  • Home is in a qualified rural area
  • Debt to income ratio cannot exceed 41%, unless you have a credit score over 680
  • Household income is equal or less than 115% of median income

There are still some credit requirements associated with any of these loans such as minimum credit scores and minimum down payments. This can also vary from lender to lender, but not in vast differences. It’s important that you compare multiple offers to ensure you are getting the best deal possible.

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