How Much Down Payment do you Really Need to Buy a House?

By Sandy Flores, Broker

Santa Ana College, Community Services Program

Saving for a down payment is an important step in becoming financially prepared for homeownership, and there are options and opportunities for financing a home purchase that will allow the borrower to come with little or No Down Payment. For most first-time home buyers, coming up with funds for a down payment is the biggest obstacle to homeownership.

Mortgage Attitude

In the mortgage industry, 20% down is considered the benchmark down payment for looking strong on paper as a home buyer. How strong you are on paper will determine how you could obtain a loan.

However, this being a general standard for financial strength does not mean a requirement to get a loan. Reality is that there are home loans that can be obtain with $0 Down Payment if you are eligible.

1. FHA loans will allow you to apply for as low as a 3.5% down payment up to the maximum conforming loan limit in the county in which the property is located. Most lenders can lend up to $417,000 under FHA guidelines.

2. Conventional 5% Down Payment is another option for first time homebuyers. This is an excellent alternative to the higher-priced FHA loan Mortgage Insurance that allows to get rid of PMI after accumulating 20% equity after a minimum of 24 months.

3. $0. – Down Payment: there are 2 options that are available if you are eligible:

1. VA loans allow 100% financing all the way through the maximum conforming loan limit in the county in which the property is located. Veteran’s Affairs mortgage loans are available to veterans, current members of the military and their spouses.

2. USDA Loans allow 100% financing through the Rural Development United States Department of Agriculture. Property must be located within an area designated to be eligible for 100% financing.

There are also 10% down payment and 15% down payment loans. All 3 of these types of loans involve PMI. As time goes on, the push will be for a minimum 20% down payment. Remember with 20% down, there is no PMI. Conventional wisdom says you should put down as much as you feel comfortable putting down to buy a home. Generally, more is better than less. But don’t wipe out your savings account to do it. You will still need to have funds set aside for a rainy day and for things to buy after buying a home.

Jumbos loans are loans that usually can go as high as $750,000 with as little as 10% down.

However keep in mind that if you’re putting less than 20% down payment on a home, your monthly property taxes and fire insurance terms are most likely to be built into your monthly mortgage payment, and you’ll maybe have to pay for private mortgage insurance, as well.

Ultimately, the minimum down payment required will depend on the type of loan that you choose. Each mortgage loan type carries its own guidelines, and today underwriters closely scrutinize a borrower’s ability to repay the loan before giving you a loan.

Sandy Flores, Broker