Mortgage Down Payment Information for Newcomers (2024)

FAQs

How much money should you put toward your home's downpayment responses? ›

Putting down 20% of the price of the home as a down payment is a common guideline recommended by financial advisors and real estate experts. This amount helps you avoid private mortgage insurance (PMI), which can add extra costs to your monthly mortgage payments.

The average down payment on a house for a first-time buyer is just 8 percent, and some loan programs allow for as little as 3 percent down. A larger down payment can result in a lower interest rate but also limit the funds available for other homebuying expenses.

The primary reason financial experts recommend a 20% down payment is that conventional mortgage lenders typically require private mortgage insurance (PMI) on loans with lower down payment amounts. PMI protects lenders in the event that you default on your payments.

It's a percentage of the home's sales price and is cash you put down in addition to the money borrowed as a mortgage. The down payment takes some of the risk off of lenders because you have your own money invested, which means you have more at stake and are more likely to make your payments.

As an example, for a $250,000 home, a down payment of 3.5% is $8,750, while 20% is $50,000.

The down payment needed for a $300,000 house can range from 3% to 20% of the purchase price, which means you'd need to save between $9,000 and $60,000. If you get a conventional loan, that is. You'll need $10,500, or 3.5% of the home price, with a FHA loan.

While a 20 percent down payment is the traditional standard for purchasing a home, it is not mandatory and there are loan options that have much lower minimum requirements. Private mortgage insurance will likely be required with a down payment of less than 20 percent, which will add to your monthly payment.

Government-backed mortgages can allow you to get a home with a low down payment or poor credit. The government insures government-backed loans, meaning they pose less of a risk to a mortgage lender. This also means that lenders can offer borrowers lower interest rates.

A borrower can request PMI be canceled when they've amassed 20 percent equity in the home and lived in it for several years.

How much do most lenders require for down payment? ›

FHA loans require as little as 3.5 percent, and VA loans and USDA loans have no down payment requirement at all. Most homeowners don't put 20 percent down. In 2023, the median down payment among homebuyers was 15 percent, according to the National Association of Realtors (NAR).

The median down payment for all home buyers is 15%, according to the National Association of Realtors (NAR). First-time buyers make smaller down payments: They put down a median 8%, compared to 19% for repeat buyers.

If you're a buyer who is well qualified to make monthly payments but feeling shut out from the housing market by a lack of upfront cash, ask your lender about low- or no-down payment loans, and also look into government grants and loans that can help make your dream of homeownership a reality.

Verifying Your Down Payment, Closing Costs, Assets, Income and Debts. A critical step in the mortgage loan application process is to verify the sources for your down payment, closing costs and assets, as well as documenting income and debts. The lender uses this step to determine your qualifications as a borrower.

The formula looks like this: Down Payment = Purchase Price × Down Payment Percentage. Down Payment = $200,000 × 10%

Like many homebuyers, you may think you need to put a hefty 20% down on a new home. However, based on data from the National Association of Realtors, the typical down payment on a house actually stands at 8% for first-time homebuyers and 19% for repeat homebuyers.

The first step to budgeting for a house is to set your down payment goal. Aim for 20% so you can avoid paying for private mortgage insurance (though 5–10% is okay if you're a first-time home buyer). Then, start saving money. Make sure to create a detailed budget each month and stick to it.

The larger your down payment, the lower your monthly mortgage payment. While 20% is a good rule of thumb if you can afford it, there are opportunities for lower down payments – some even require no down payment at all. Specifically, you can get Federal Housing Administration loans with a 3.5% down payment.

This insurance, which typically runs about 0.5 to 1.5% of your loan amount per year, is designed to protect the lender's investment in your home, signaling your commitment to the purchase. Reaching the 20% threshold allows you to eliminate this additional cost, which in turn will reduce your monthly mortgage payments.