Are you looking to buy a home and wondering what you will need for a down payment?
What is a down payment?
A down payment is the money that you, the home buyer will contribute, from your own funds, towards the purchase of your future home.
If you intend to finance your home, also known as obtaining a mortgage, your lender considers this down payment as your “skin in the game,” or the gauge of your seriousness and willingness to repay your loan.
If you don’t repay your mortgage, you lose your home and all of the money that you put into it, including your down payment.
The more money you put down on the home, the more acceptable of a risk you are to your mortgage lender. With that line of thinking, usually comes lower monthly payments.
Down payment amounts can vary and it really depends on the type of loan that you are getting. There are several different loans that are available to the average home buyer, including Conventional, FHA, USDA and VA.
Typical down payment amount: 5%-20% of the purchase price.
Example of down payment needed: if the purchase price of your home is $200,000 and your down payment is 20%, then the amount that you will need is $40,000. $200,000 x 20% = $40,000.
Conventional loans are typically loans that are available to home buyers with good (or better) credit and have the potential of carrying a lower interest rate and no mortgage insurance.
Typical down payment amount: 3.5% of the purchase price.
Example of down payment needed: if the purchase price of your home is $200,000 and your down payment is 3.5%, then the amount that you will need is $7,000. $200,000 x 3.5% = $7,000.
FHA loans are very popular with first time home buyers, as credit standards are a bit more relaxed than conventional loans. Along with lower credit standards, the down payment amount can be as little as .5% of the purchase price. FHA loans do tend to have higher interest rates than conventional loans and also carry mortgage insurance.
Typical down payment amount: Zero down
USDA loans are zero down payment loans that are slated for rural housing in select areas. This is a great opportunity for first time home buyers, with less than perfect credit that wish to live in rural areas.
Typical down payment amount: Zero Down
VA loans are for our US Veterans. This is an excellent zero down program that can be used typically in any area.
Knowing how much your down payment will need to be is critical to your planning process when buying a home. We hope this article has shed some light on your questions.
Do you have more questions? Feel free to comment in the box below!