How much down payment is enough to buy a house?

How much down payment is enough to buy a house?

One of the big mysteries for first-time home buyers is how much to put down. For years there has been a myth that you have to have 20% down to buy a house. It’s not true!

In fact, the average down payment on a house for a first-time buyer is approximately 6% of the purchase price.
For buyers who bought before, it goes up to around 12%. Both figures are far from needing 20%.
Remember that the minimum down payment depends on the type of loan, the lender you choose and your current finances.

Let’s take a look at some of the most popular loan programs and their respective down payment requirements. One of the covered loan programs should be a great option before make an offer on a house.

What are installments?

The down payment is the amount of money you pay out of pocket when buying a home. You get a mortgage from a lender to pay the rest of the purchase price of the house over a number of years. This is called the term of the loan.

Down payments are often referred to as a specific percentage of the purchase price. For example, a 10% down payment on a $500,000 home would be $50,000.

When you buy a house, the amount of money you have invested will become your equity on the day of purchase. The mortgage lender you choose to work with will provide you with the rent money to buy.
For most mortgage programs, you will need a down payment. However, there are a few that don’t, including a VA loan and a USDA mortgage.

The myth of the 20% mortgage

For years, many people have assumed that a 20% down payment is needed to buy a home. The confusion is probably because if you put down less, you’ll have to pay for private mortgage insurance.

Private Mortgage Insurance or PMI is a fee that helps protect lenders in the event of a loan default on their mortgage. You can get rid of the private mortgage insurance payment when your principal reaches 20%.

Low and no down payment mortgage programs

Here’s an overview of the down payment requirements for some of the most popular mortgage programs.

No loan with down payment

The two no-down payment mortgage programs are a VA loan and a USDA loan. VA mortgages are for current and former military service members and their eligible spouses. These loans are guaranteed by the US Department of Veterans Affairs.

USDA loans are backed by the United States Department of Agriculture. A USDA mortgage can only be used for the purchase of rural property which is generally considered to have a population of 35,000. You must also qualify for the program’s income limits.

A qualified mortgage broker or lender can guide you through these two loan programs.

Conventional mortgages at 3% down

There are two popular 3% down payment conventional mortgage programs. They are known as HomeReady and Home Possible. These conventional loan programs are not supported by the federal government following the guidelines set by Freddie Mac and Fannie Mae.

FHA Loans

FHA loans are one of the most popular mortgage programs due to their 3.5% down payment requirement. They also have some of the most lenient credit scoring requirements. These mortgages are guaranteed by the Federal Housing Administration.

If you have a credit score of 580 or higher, you will be able to deposit 3.5%. If your credit score is between 500 and 579, an FHA mortgage will require a 10% down payment. However, some lenders may not grant the loan when the credit score falls below 580.

Disadvantages of a lower down payment

  • When real estate markets favor sellerslow down payments are not viewed favorably due to the potential assessment issues in bidding wars. Very often, low down payment borrowers cannot bridge valuation gaps.
  • Higher down payments usually get the best interest rates from lenders.
  • A higher down payment will provide a lower monthly mortgage payment.
  • You will have less equity in your home with little or no down payment.

What to put on a house

The amount of money you put on a house depends on your financial situation. Do what is best for you. Always remember to have an emergency fund. Murphy’s Law can and will happen when you least expect it.

For more information, contact Mike Kogler today!

Call or text Mike at (302) 236-7648

Michael Kogler, REAL ESTATE AGENT
MIKE KOGLER TEAM: 1st Sales Team

Long & Foster Real Estate, Inc. | Christies International Real Estate
Delaware Coastal Properties Division
37156 Rehoboth Ave, ext.
Rehoboth Beach, DE. 19971
Cell: (302) 236-7648
E-mail: [email protected]
The Web: www.MikeKogler.com
Henlopen sales and rentals: www.HenlopenRB.com

About Matthew R. Dailey

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