How much you’re required to put down on a house is determined by the type of loan you get, but it generally ranges from 3% to 20% of the purchase price of the home. Beyond lender requirements, it can be financially beneficial to increase your down payment to reduce the amount of your monthly mortgage payment. Offers with larger down payments can be more appealing to home sellers who are looking for buyers with a low risk of financing issues that could delay the sale – or worse, have it fall through.
What is a down payment on a house?
The down payment on a house is a portion of the cost of a home that’s paid in cash. The balance of the purchase price is usually paid by a loan you secure from a lender and pay back in a monthly mortgage payment. Down payments are expressed as a percentage of the total purchase price and the percentage you’re required to pay is dictated by the terms of your loan. Note that not all home buyers with financing are required to produce a down payment.
How much to put down on a house?
The ideal down payment amount is 20% of the purchase price of the home. Paying 20% up front reduces your monthly mortgage payments, can eliminate costly private mortgage insurance (PMI), can reduce interest rates and improves the competitive nature of your offer.
When trying to decide how much you should put down on a home, play around with a mortgage calculator to determine an amount that works best for your finances. As you explore, remember that in addition to your down payment, you’ll have some other up-front costs you’ll need to pay at closing, collectively called your escrow funds. It can include your closing costs, prorated taxes, title fees and more.
20% down reduces mortgage payment
The more money you pay upfront, the less you have to borrow from the lender, and the lower your monthly payment will be.
Example: Let’s say you buy a $300,000 home at a fixed rate of 4.25%.
20% down eliminates private mortgage insurance (PMI)
When you put 20% down, that means you own 20% of your home. This allows you to avoid paying PMI, which is a monthly charge that’s rolled into your mortgage payment to protect the lender from what they see as a riskier loan.
Example: If you buy the same $300,000 home noted above, with 5% down, your PMI payments each month would be $181 until you own 20% of the home and refinance into a loan without PMI.
What is the minimum down payment for a house?
The minimum down payment for a house depends on the loan you’re using to finance the purchase. Some people may be able to qualify for loans with 0% down, but loans with 3% down or 3.5% down are common. Lower down payment loans, including the 3.5% FHA loan, are designed to make homeownership more attainable for first-time buyers.
Keep in mind that even if you finance with a loan that allows a lower down payment, you’ll usually still have to pay closing costs out of pocket. There are a few 0% down loan types that will roll all costs into the mortgage, but they can be hard to come by.
What are the zero-down payment mortgage options?
For most zero-down payment home loans, there are certain criteria buyers have to meet, and many people don’t qualify. Certain groups like health care workers, educators, protectors, veterans and households with disabled members can qualify for specific programs.
Requirements vary, but many of these programs are available to first-time buyers or those who haven’t owned a home for at least the past three years. The home they’re buying usually has to be their primary residence, too.
Down payment assistance program: These programs allow buyers to take out a second mortgage to cover the cost of their down payment, sometimes with benefits such as zero percent interest and deferred payments. These programs are usually run by government agencies or nonprofits.
Below-market first mortgages: Also known as first-time home buyer programs, these are below-market interest rates with reduced closing costs or fees. They’re typically funded by state housing finance agencies as a way to help lower up-front and ongoing costs for first-time buyers.
Tax credit or mortgage credit certificate (MCC): The MCC is a tax credit that allows first-time home buyers to offset a portion of their mortgage interest, up to $2,000 per year, which also helps buyers qualify for a loan because it counts toward monthly income.