When you are thinking about purchasing a home, what’s the first thing you consider?
For many; it’s the downpayment. This chunk of money creates a lot of worry, delay, and confusion among would-be homeowners. Knowing how much you will need depends on many factors, making it hard to calculate.
With a little knowledge, a little math, and a little research, you can have a fairly accurate understanding of how much you will need for a downpayment.
While we can’t simply say “you will need $5,000 (or whatever amount) for a downpayment,” we can give you a general idea based on the price of the home and the loan product you will be using.
Downpayments: How Much Will You Need?
Busting a Myth: You Do Not Need 20%
There is one important myth that we need to bust before moving forward. Despite what you may have heard, you do not need a 20% downpayment! Yes, for some real estate loans, such as commercial or jumbo loans, a 20% downpayment may be required. But if you are purchasing a single-family home for your own personal use, you will rarely, if ever, need 20% down.
Let’s look at a few different loan products to see how much you will need…
Conventional Loans: 5% to 20%
These are loans that are not supported by a government organization, such as the FHA or VA. Because they are issued by private lenders, the specifics can vary, although “conforming” conventional loans fit the guidelines set by Fannie Mae.
For these loans, you will need roughly 5% to 20% to secure the mortgage, largely depending on the lender requirements and your personal situation. (Such as credit score, debt load, and income.)
Conventional 97 Loans: 3%
There is a special loan program offered by Fannie Mae called Conventional 97. With this option, you only need 3% down for the loan. (It’s called “97” because you can finance 97% of the purchase.) This program has higher credit requirements, and the debt-to-income ratio may be more strict than other programs.
FHA Loans: 3.5% or 10%, Depending on Credit
FHA loans are a useful option for people who want a lower downpayment, as you can secure financing with as little as 3.5% down. FHA loans essentially have to categories: regular and low-credit. If you have a credit score of 580 or higher (what we are calling “regular”), you can secure financing with only 3.5% down. However, if your credit score is between 579 and 500, you will need 10% down. (If your score is below 500, FHA financing is unavailable.)
No Money for a Downpayment? You Still Have Options
While 3.5% or even 3% is a relatively low downpayment requirement, there are a few options that allow you to purchase a home with less. In fact, you can find options that allow you to make a purchase with absolutely no downpayment. While you still need money for closing costs, these options make home-buying far more accessible. Qualification, however, is far more limited.
VA Loans: 0%
If you have little to no money for a downpayment, but would qualify for benefits through the Department of Veterans Affairs, you may be able to secure a home loan with zero cash for a downpayment. Zero-down is a rare option for most borrowers, but it’s one of the many benefits provided by the VA, which supports home financing, generally called “VA loans.”
USDA Loans: 0%
Another government organization that allows you to purchase a home with 0% down is the United States Department of Agriculture (USDA). The USDA, which is generally associated with creating ag-related policy, has a program that supports the development of rural and suburban areas.
The biggest requirement for a USDA loan, however, is the location of the property. The home you are buying needs to be in an eligible area; you can consult the USDA’s map to see which locations qualify. If the home is in the right area, and you meet the other requirements, you can qualify for a mortgage supported by the USDA with no money down.
Look for Downpayment Assistance
There are also programs that provide assistance for downpayments. Provided by a variety of different organizations, including local, state, and federal governments, as well as private charity groups, these programs help less-fortunate individuals purchase homes without the significant barrier of a downpayment. Check with your local government, and talk with a regional lending agent to learn about any programs that may be available to you.
So…How Much Will You Need?
While it would be impossible to describe every downpayment related to every single home price, this table will give you a rough idea of your downpayment needs based on the purchase price of the home and the downpayment percentage.
|
$150k |
$200k |
$300k |
$400k |
$500k |
$750k |
$1 Million |
|
|
3% |
$4,500 |
$6,000 |
$9,000 |
$12,000 |
$15,000 |
$22,500 |
$30,000 |
|
3.5% |
$5,250 |
$7,000 |
$10,500 |
$14,000 |
$17,500 |
$26,250 |
$35,000 |
|
5% |
$7,500 |
$10,000 |
$15,000 |
$20,000 |
$25,000 |
$37,500 |
$50,000 |
|
10% |
$15,000 |
$20,000 |
$30,000 |
$40,000 |
$50,000 |
$75,000 |
$100,000 |
|
15% |
$22,500 |
$30,000 |
$45,000 |
$60,000 |
$75,000 |
$112,500 |
$150,000 |
|
20% |
$30,000 |
$40,000 |
$60,000 |
$80,000 |
$100,000 |
$600,000 |
$200,000 |
Remember, Downpayment is Not Closing Costs
We’ve discussed a lot about downpayments, but some people assume that this is the only upfront cost related to purchasing a home. It’s important to remember that there are also closing fees and purchasing costs. You will likely need to pay for an appraisal, surveys, transfers, title insurance, credit reports, recording fees, and many other costs associated with buying a home. These cost are not related to the mortgage, but are merely part of the buying process. In other words, you would pay these costs even if you bought the home outright with cash.
Keep these fees in mind and don’t assume that the downpayment is the only upfront cost for purchasing a home.
No Matter What Your Downpayment, We are Here to Help
Whether you can afford a high-percentage downpayment on a jumbo loan, or you need a low-downpayment option on a moderate property, we are here to help. Give us a call or contact our staff and you’ll get the service you need for an affordable, convenient home loan.
