What size down payment do I need to buy a house?
Twenty percent is no longer the rule
- Your down payment will depend on your set of circumstances.
- The actual down payment is not the only cost to consider.
- There are four common loan types that require low or no down payment.
The amount you need for a down payment on a home depends on a few things. The biggest factor is the type of mortgage loan you get. Additional required costs play a role as well.
Costs associated with buying a home
When you are purchasing a home, the amount you need upfront goes beyond the down payment. There are additional costs to prepare for. These include professional appraisal costs, inspection fees, and closing costs. You may also be required to have two or more months of payments available in the bank.
The types of fees and amount of fees will vary according to your lender, the seller, and the cost of the house. For instance, though a home inspection is usually required, there may be circumstances where it is not. Also, the seller may pay some or all of the closing costs, decreasing the required upfront amount.
Common loan types
As far as the down payment itself, it will vary according to the total cost of the house and the type of loan you are getting. Here are four common loan types and the amount of down payment you can expect:
FHA loans are those backed by the Federal Housing Administration. These are often one of the best options for those with bad credit. They require much lower credit scores and require as low as 3.5% down.
There are more costs to prepare for when buying a home than the down payment. The associated fees, closing costs, and more will be included in the upfront payment.
VA and USDA loans
Though these are two separate loan types, they are mostly similar. VA loans are available for military members and veterans, and they are backed by Veterans Affairs.
USDA loans are backed by the U.S. Department of Agriculture and are available for rural and suburban buyers that meet certain requirements that are geared toward rural development. Both of these loan types typically require 0% down.
Conventional loans are the mortgage loans that most people think of. These are not backed by any government program. Instead, a bank or other financial institution provides the home loan. Conventional loans are a bit more difficult to get approved for, but they do require as little as 3.5% down.
Should potential home buyers put down more than is required?
Though it is a completely personal decision, putting more down than is required is a wise move. The most obvious reason for this is that the more you put down, the less you need to borrow. The less you borrow, the less interest you have to pay.
Additionally, your monthly payment will be lower, and you may even get approved for a lower interest rate. It also tends to increase home buyers’ approval odds. Another reason it is wise is that you might get some discounts or be able to bypass some fees.
For instance, a down payment of 20% or more typically means you are not required to carry PMI, or private mortgage insurance. There are both pros and cons to paying extra. Weigh them against one another to make the best decision for you.
How much money do I need to buy a house?
The bottom line is that the amount you need depends entirely on your situation. If you are looking for a specific amount, you will not get it until you choose a house, a loan, and a lender. However, there are a few things you can do to get an idea.
First, determine the amount you are willing to spend on a house. Then, figure out the worst case scenario. How much would a 20% down payment on that amount be? Now add in 5% closing costs and six monthly mortgage payments.
Last, add in everything you will need to buy for your new home upon moving in, i.e. a lawn mower, curtains, and so on. The amount you get should be the most you need. You could aim to save that prior to looking for a home. Then, if you get a better deal, you have some cash left.
A deeper dive — Related reading from the 101
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Here are some reasons to not pay more down than required.
These tips can help you make decisions before you start the buying process.