How much down payment do I need?

It’s a common belief that you have to put down 20% if you want to buy a house. Saving up for a 20% down payment is an overwhelming obstacle to many, especially renters who are hoping to buy their own home. But this common belief is not true – you don’t need to pay 20% down. In fact, the median down payment for first-time buyers is only 7%.

But it’s not just first-time buyers who want to make a lower down payment. While it’s true that some current homeowners that are looking to move may be able to get funds from the sale of their home, they still want some flexibility with the down payment. That is not a problem. There are lots of different types of mortgages and they all have different requirements. You may be able to get a loan with only 3.5% down, or no down payment at all.

Some loans to consider if you want to make a low-down-payment:

• Conventional loans: These mortgages typically have low-interest rates and down payment options. 
• FHA loans: Many buyers who don’t have the funds for a big down payment consider a Federal Housing Association (FHA) loan, where the down payment may be as low as 3.5%.
• USDA loans: These mortgages are designed for limited income homebuyers in towns with populations of 10,000 or less, or that are “rural in character.” Some towns with bigger populations still qualify because they are grandfathered in. Down payments for USDA loans can be as low as 0%. Can’t get much lower than that.
• VA loans: These are loans that are issued to veterans, active duty, guard and reserve members, select military spouses, and some individuals who have served in the Service Academy or the Public Health Service Commissioned Corps. The down payments can be as low as 0%.*

These are just a sampling of the mortgage programs that offer low down payment options. Your Caliber Home Loans, Inc. ("Caliber") Loan Consultant can review other possibilities with you.

You should know that when you put down less than 20% on certain loans, you may have to pay private mortgage insurance (PMI). This is a monthly fee the lender charges to secure their investment. It ranges from 0.3% to 1.15% and usually gets bundled into your monthly payment, so it doesn’t feel like a big expense. Read more about PMI here. 

Having said all that, if you can pay 20% down, that’s great. Sometimes the other requirements, like minimum credit score, are more lenient because you’re investing more. A large down payment may also mean lower monthly payments.
On the other hand, making a lower down payment saves you money upfront; money that might be needed for moving expenses or furniture for your new home.

The important thing to remember is this: there are lots of different mortgages with different requirements. So don’t let the idea of a big down payment keep you from pursuing homeownership. One of these mortgage programs will be right for you. Talk to a Caliber Loan Consultant and they can review your situation and go over your options. And yes, you will have options.

*Partially remaining entitlement may require additional down payments.