How Much Down Payment Is Neede On A House

Dated: 07/19/2017

Views: 259

Historically, when someone says down payment on a house, the immediate response is that a 20% down payment is requirement.  A down payment is almost a reality when purchasing a home.  But do you really need 20% down?  This post is based on an article on Realtor.com.

The answer is “depends” but the good news it is not set in stone!  It depends on your goals, your budget, and available programs.  The good news, is that there are many options for less than 20% down!

When your down payment is less than 20%

All is not lost.  There are many options available for loans with less than 20% down.  On a FHA loan, you may be eligible for a loan with as little as 3.5% down on your home.  In other circumstances based on income, there are down payment assistance programs available.  Please speak to a mortgage professional and ask me about a mortgage professional if you do not have one!

With less than 20% down on a home purchase, you will be required to pay primary mortgage insurance (PMI).  The PMI rate is dependent on how much you put down and can change with the market.  The more you can put down as a down payment, the less you will pay in PMI.  The PMI is there to protect the lender.

The good news is that PMI is not permanent.  PMI will be removed from your payment once you hit 80% loan to value ratio (or you have paid the equivalent of 20% of your homes value).  You can always ask your lender to remove the PMI after a few years of good payment history (never guaranteed but does not hurt to ask).  A mortgage professional can also provide you up to date information on PMI rates and at what down payment the PMI reduces.

When your payment is 20% or more

First off, you will no longer be paying PMI on your new home loan which can be a nice monthly savings.  In some cases, you may be able to get a better interest rate.  When possible, 20% down definitely helps when purchasing a home.  There are pros to have 20% or more down payment on a home.  It is not required and you always need to look at your situation.  

Bottom Line

  1. Look at your budget.  Take your monthly income and expenses and see what you can really afford every month.  Do not be afraid to critically look at your budget. 

  2. Talk with a mortgage professional to see what you be approved for.  There are numerous programs available and ways to make a loan happen.  Your circumstances and your budget will help to determine what you can put down on a home and what is the best path for you (it may be that it is better for you to put less down but you will not know until you talk to someone). 

  3. Once you determine what is best for you, then you can start looking at homes!

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