There is a common misconception that you need a 20% down payment to buy a house. But the truth is, your down payment depends on your lender, your credit score, and the type of mortgage you qualify for. For example, some loans only require 3% down payment.
If you’re thinking of buying a home, we have good news. Some lenders will let you buy your home with a much smaller down payment. Keep reading to find out exactly how much you need to save before becoming a homeowner:
What is a down payment?
A down payment is the money you pay up front when you apply for a mortgage to buy a home. For most mortgages, lenders require a down payment. According to Fannie Mae, one of the biggest hurdles for first-time buyers is making a down payment.
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The “traditional mortgage” requires a down payment of 20% of the purchase price. For example, a 20% down payment on a $300,000 home would be $60,000. Saving that amount of money can be a challenge for some potential buyers, which is why mortgage lenders offer options that require lower down payments. For example:
What type of loan: Classic loan
Conventional loans are not government insured but are backed by private lenders. These loans are among the most common, as potential buyers can deposit as little as 3%. They also offer more flexibility, with some conventional loans offering a fixed mortgage rate of 10 to 30 years. That said, since conventional loans are not guaranteed by the government, they are generally more difficult to obtain.
Down payment reduction
What type of loan: FHA loan
FHA loans are backed by the Federal Housing Administration. These insured loans are a type of federal assistance and only require a 3.5% down payment for borrowers with a credit score of 580 or higher. If your credit score is between 500 and 579, FHA loans require 10% of the purchase price.
FHA loans are government-insured and easier to obtain than a conventional loan, making them an attractive option for prospective homeowners with limited savings and lower credit scores.
What type of loan: VA & USDA loan
VA loans are $0 mortgage loans backed by the United States Department of Veterans Affairs to current and veteran military service members and their spouses. Eligible borrowers can use a VA loan to purchase single-family homes, condos, and more. However, these loans cannot be used to purchase investment properties or vacation homes – they are for primary residences only.
USDA loans are another $0 down payment mortgage. But these loans are backed by the Department of Agriculture’s Rural Development Program and designed for buyers of rural or suburban homes. To be eligible, you must meet their requirements for adjusted household income, credit score, and place of residence.
How much should you put on a house?
You don’t need a 20% down payment to buy a house. The amount you should save depends on the type of mortgage you are approved for, as well as your financial situation. Although a larger down payment can save you from a high monthly payment, it could cause you financial problems if you pay more than you can afford. If you are able to own a home with less money up front, this might be the best choice for you. Talk to a trusted lender Where mortgage broker for advice specific to your situation.