How Much Minimum Down Payment on a Home Loan Depends on Your Choice of Mortgage House

By
Martins Chima
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What is the minimum down payment for house first-time buyer mortgage? I usually tell people that how much you need for a down payment on a home, based on which type of mortgage you get. It’s as simple as that. Your down payment is the initial amount you pay when purchasing a home.

Conventional mortgages often require a down payment as low as 3% of the home’s purchase price. Some government-backed loans, such as FHA loan, VA loan and USDA loans, offer the advantage of not requiring any down payment, making homeownership more accessible for eligible applicants.

In this guide, we will be talking how much down payment a person normally need to pay for mortgage. This is to enable you know the actual amount you have to deposit as initial payment to a lender for property or conventional loans.

Furthermore, we will answer questions like “who gets the down payment on a house”, “where does my down payment go on a house” as well as “how much down payment for a 100k to 500k house”.

A Guide for Minimum Down Payment for house first-time buyer

Buying a house requires a payment upfront called a “down payment.” Many people who want to buy a house don’t actually know how much money they need to pay for this upfront cost. A study by the Urban Institute found that 39% of people who currently rent a home think they need to pay more than 20% of the house price as a down payment.

However, the truth is that most people pay less than 20%. People who have bought houses before usually pay 17% as a down payment, and those buying a house for the first time usually pay only 7%, according to the National Association of Realtors.

Paying a smaller amount for the down payment can make it easier for more people to buy homes. How small the down payment can be depends on the type of mortgage you choose.

What is Down Payment in Mortgage?

When you’re buying a home, the down payment is the part of the house’s cost that you pay using your own money. This payment is made when you’re finishing the paperwork to officially become the owner of the home.

For instance, if the house you want to buy costs $200,000, you could choose to put down $20,000 as your down payment. This $20,000 would be 10% of the total price of the house. After that, you would borrow the remaining $180,000 as a loan, which is called a mortgage.

Related Mortgage Terms

Different Amount of down payment you’ll need for each Type of Mortgage

What is the minimum down payment for a house? There are two basic types of mortgages: conventional and government-backed.

A conventional mortgage does not have insurance or a guarantee from a government agency. On the other hand, a government-backed mortgage is protected by a federal agency. This agency will help your lender if you can’t make your mortgage payments. Normally, some government agencies that do this are the Federal Housing Administration, the Department of Veterans Affairs, and the Department of Agriculture.

The least amount of money you have to pay upfront, which is called a down payment, varies based on whether you go for a conventional or a government-backed loan. It also depends on the specific type of loan you choose within those categories. Therefore, the minimum down payment required depends on whether you choose a conventional or government-backed loan, and which sub-category of loan you get.

1. Conventional mortgages

There are two types of conventional mortgages popularly referred to as regular loan:

  • Conforming loan: This type of mortgage follows the rules set by the Federal Housing Finance Agency and fits the requirements to be bought by either Fannie Mae or Freddie Mac. In 2023, in most parts of the US, the maximum limit for a conforming loan is around $730,000. You can put down as little as 3% of the home’s price for this kind of mortgage. But if you’re not buying your first home or you don’t have a low income, your lender might ask you to put down 5% or more.
  • Nonconforming loan: When a mortgage doesn’t fit the FHFA’s loan limits or doesn’t meet other conditions to be bought by Fannie Mae or Freddie Mac, it’s called a nonconforming mortgage. The most common type of nonconforming mortgage is called a jumbo loan. Jumbo loans have higher limits, which can be different depending on the lender, sometimes going as high as $2 or $3 million. For these mortgages, you usually need to pay a larger down payment, often 10% or 20%.

2. Government-backed Mortgages

There are three types of mortgages that the government supports. They are; Federal Housing Administration (FHA), Veteran Affairs (VA) and United States Department of Agriculture (USDA).

  1. FHA loan: This type of federal housing mortgage has easier rules compared to regular ones. If your credit score is 580 or higher, you’ll need a down payment of 3.5%. But if your score is between 500 and 579, then the down payment goes up to 10%.
  2. VA loan: This veteran affairs mortgage is specifically for families in the military. You don’t need to pay any down payment if you’re getting a VA loan.
  3. USDA loan: This US department of Agriculture mortgage is for people with lower to middle incomes who are buying homes in rural or suburban areas. You don’t have to pay any down payment for a USDA loan.

Why Should you Save for Down Payment on Mortgage?

There are three (3) main reasons to save for a larger down payment. If you’ve managed to save the smallest amount of money needed to buy a house, you might feel ready to start the process. However, it’s worth thinking about saving even more for the down payment. Here are some good reasons to put down extra money at the beginning:

  1. Lower interest rate: Lenders like it when you give a bigger down payment, and they might give you a lower interest rate in return. Normally, this could end up saving you a lot of money – possibly tens of thousands of dollars – over the years.
  2. Smaller monthly payments: If you take out a mortgage for 30 years, the total amount you borrowed gets spread out into smaller payments over those years. So, the less you borrow, the smaller your monthly payments will be.
  3. Less or no mortgage insurance: If you manage to put down 20% of the house’s price with a regular mortgage, you won’t have to pay for private mortgage insurance (PMI). PMI can cost between $30 and $70 per month for every $100,000 you borrow, as estimated by Freddie Mac. Different types of mortgages might need other types of insurance, and the less you borrow, the less you’ll need to pay for insurance.

Generally, having a larger down payment can really help you save money in the long term. However, there are also advantages to buying a bit sooner with a smaller down payment. The best choice depends on what works best for you.

Mortgage Calculator

You can use any free mortgage calculator online to see how a smaller or larger down payment will affect your monthly payments.

To calculate your home loan down payment, you will generally need the following details:

  1. Loan amount (the total amount you want to borrow)
  2. Interest rate (the annual interest rate on the loan)
  3. Loan term (the number of years you’ll be repaying the loan)
  4. Down payment (the initial amount you’re putting down)
  5. Any additional fees or costs (if applicable)

With this information, you can calculate your monthly mortgage payment and get an estimate of how much you’ll be paying each month.

Note that the result you will get is just an estimate and the actual amount may be different. Buy it depends on other factors like property taxes, insurance, and any changes in interest rates. Therefore, a person buying a $100,000 home and another person buying a $500k home will have different down payment.

Lastly, your debt-to-income ratio has it’s own role to play when the lender wants to approve your mortgage application. There is a guide on how to calculate your DTI ratio. Everyone has the chance to qualify for a mortgage home loan. Simply make sure you have a good credit score rating to stand a better chance to get a mortgage.

I hope this guide on mortgage Down Payment – Meaning, Car/House Example, Calculations is helpful. Don’t find what you are looking for? Browse these helpful tutorial below.

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