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  • Writer's pictureLorna Leibowitz

Guide to Down Payments On Homes & Condos

Updated: Mar 18, 2023

A home down payment is the portion of a purchase price you pay upfront. Here is a guide to the down payment on a house.


WHAT IS A DOWN PAYMENT?

A down payment is money you pay upfront to make a big purchase, like a home purchase. You use a loan to submit payments for the rest of the purchase price. Down payments are often displayed as part of the price. A 10% down payment on a $470,000 home would be $47,000.


Upon applying for a mortgage to purchase a house, the down payment is your payment for the purchase and stands for your starting ownership stake in the house. The mortgage lenders provide the remainder of the money to purchase the property.


Lenders demand a down payment for many mortgages. Still, certain kinds of loans supported by the federal government might not need down payments.


DO YOU NEED TO PUT 20% DOWN ON A PROPERTY?

You might read that you must pay a 20% down payment on a house, but that’s merely the threshold many lenders utilize for needing mortgage insurance for a loan. You don’t need a 20% down payment to purchase a house.


In 2021, the typical down payment for first-time home buyers stood at 7%, according to the National Association of Realtors. The typical down payment stood at 17% for returning buyers.


MINIMUM DOWN PAYMENT REQUIREMENTS

The minimum down payment needed for a house varies according to the kind of mortgage you plan to apply for:


0% DOWN PAYMENT MORTGAGES

Guaranteed by the U.S. Department of Veterans Affairs, VA loans often do not need a down payment. VA loans are for veteran and current military service members or eligible surviving spouses. USDA loans, backed by the U.S. Department of Agriculture’s Rural Development program, have no down payment requirement. USDA loans apply to rural and suburban home buyers who can satisfy the program’s income limits.


AS LOW AS 3% DOWN PAYMENT MORTGAGES

Several mortgages, such as HomeReady and Home Possible, demand as little as 3% down. The government does not support conventional loans, but they adhere to the down payment guidelines issued by the government-sponsored enterprises — or GSEs — Fannie Mae and Freddie Mac.


AS LOW AS 3.5% DOWN PAYMENT MORTGAGES

FHA loans, which the Federal Housing Administration supports, need as low as 3.5% down if you have a minimum credit score of 580. If you have a credit score between 500 and 579, FHA loans demand a 10% down payment.


AS LOW AS 10% DOWN PAYMENT MORTGAGES

Jumbo loans are home loans that lie beyond the Federal Housing Finance Agency’s conforming loan limits. As these outsized loans cannot get supported by the GSEs, lenders may often ask for higher down payments to offset risks.


With low- or no-down-payment loans, you pay for the guarantee with fees or mortgage insurance, based on the program.


HOW MUCH SHOULD YOU PUT DOWN ON A HOUSE?

Your ideal down payment is based on your goals and financial profile. Though there are a lot of benefits with a more significant down payment, putting down too much may just let you stay in dire shortage of cash after you move in.


Conventional mortgages often require you to pay for private mortgage insurance when you put down less than 20%. When you begin making mortgage payments, you may seek to cancel PMI once you get over 20% equity in your home.



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