How Much Do You Need for a Down Payment on a House?

• A down payment is an amount you pay up front toward the purchase price of a house.
• How much you need for a down payment depends on your lender and what type of mortgage you are seeking.

For many people, a home is the largest purchase they’ll make in a lifetime. A decision that significant requires a great deal of planning, calculations, and preparation. One of the questions that often comes up is how much money to save up for a down payment for a house before a buyer starts shopping. The answer to that question depends on your lender and the type of mortgage you are applying for.

What is a Down Payment?

A down payment is a lump sum amount that you pay upfront when you’re buying a home. Your down payment goes toward the home price and reduces the amount you finance, which in turn determines how much your monthly mortgage payment will be. If you are taking out a mortgage or another kind of loan to buy the home, your lending institution may have a minimum down payment that you need to have saved up before it approves your loan. A larger down payment gets you a smaller monthly note, and the lender wants to be confident that you can meet the requirements for buying a house.

Which Lending Programs Require the Lowest Down Payment?

Conventional wisdom holds that your down payment should be 20% of the price when you buy a home; however, that’s not true for everyone or every lender. You may wonder what do I need to buy a house in my particular situation. Here are a few lenders with low down payment requirements.

• A conventional loan governed by Fannie Mae or Freddie Mac (agencies within the government that set rules about mortgages) requires a 5% down payment for loans up to $417,000. For loans larger than that, the down payment can be 10% or more. In some cases, down payments can go as low as 3% of the home’s purchase price.
• Federal Housing Administration (FHA) loans require a down payment of 3.5% of the purchase price. The federal government, through the FHA, insures these loans so that they carry less risk for the lender. Therefore, lending institutions are willing to take a chance on the FHA loan to help you buy a home.
• Veterans Affairs (VA) loans and loans through the United States Department of Agriculture (USDA) may not require a down payment at all. The VA loan is available to most active-duty members of the military and veterans. USDA loans are available to purchase a home in a rural area or specific suburban neighborhoods.

Can I Borrow My Down Payment From a Friend or Family Member?

Most lenders don’t allow the down payment to come from a loan, even one from a family member. However, conventional, FHA, VA, and USDA loans allow someone to gift you part or all of your down payment. Some communities also have down payment assistance programs that match your savings to help you accumulate the money you need.

Where Can I Learn More?

If you’re buying a home in the Franklin or Nashville areas of Tennessee, Capitol Homes would be happy to help you in your home search. We’re your one-stop-shop for everything you need to get into your new home. Capitol Homes can help you find a lender and determine how much of a down payment you will need. Contact us today to get started on the journey to the home of your dreams.

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Categorised in: Finance Tips

This post was written by Capitol Homes