{"id":7617,"date":"2019-09-02T09:30:33","date_gmt":"2019-09-02T16:30:33","guid":{"rendered":"https:\/\/financer.com\/?p=7617"},"modified":"2024-05-03T11:49:25","modified_gmt":"2024-05-03T18:49:25","slug":"down-payment-on-a-house","status":"publish","type":"wiki","link":"https:\/\/financer.com\/personal-finance\/articles\/down-payment-on-a-house\/","title":{"rendered":"Down Payment On a House: What You Need to Know"},"content":{"rendered":"\n<p>Saving for a home down payment can be one of the biggest obstacles for homebuyers. Most prospective buyers believe they need 20% of the home value, but it turns out that is not the case. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"How_Much_is_a_Down_Payment_On_a_House\">How Much is a Down Payment On a House?<\/h2>\n\n\n\n<p>The <strong>average down payment<\/strong> on a house in the U.S. is around <strong>6% of the loan value<\/strong>.<strong> <\/strong><\/p>\n\n\n\n<p>The minimum down payment on a house depends on the type of mortgage. The table below breaks down the <strong>minimum house down payment <\/strong>requirements.<\/p>\n\n\n\n<figure class=\"wp-block-table is-style-fn-tables shortcode-no\"><table><thead><tr><th>Mortgage Type<\/th><th>Backed By<\/th><th>Down Payment<\/th><th>Available To<\/th><\/tr><\/thead><tbody><tr><td><strong>Conventional Mortgages<\/strong><\/td><td>No government backing<\/td><td><strong>3%<\/strong> <strong>minimum<\/strong><\/td><td>Anyone can apply<\/td><\/tr><tr><td><strong>FHA Loans<\/strong><\/td><td>Federal Housing Administration<\/td><td><strong>3.5%<\/strong> <strong>or 10%<\/strong><\/td><td>Anyone can apply<\/td><\/tr><tr><td><strong>VA Loans<\/strong><\/td><td>U.S. Department of Veterans Affairs<\/td><td><strong>0%<\/strong><\/td><td>Veteran military service members past and current and eligible surviving spouses<\/td><\/tr><tr><td><strong>USDA Loans<\/strong><\/td><td>U.S. Department of Agriculture&#8217;s Rural Development Program<\/td><td><strong>0%<\/strong><\/td><td>Rural and suburban homebuyers who meet the program&#8217;s requirements and income limits<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p>The most popular loan type is a <a href=\"https:\/\/financer.com\/loans\/mortgage\/\" data-type=\"page\" data-id=\"5640\">conventional mortgage<\/a>.<\/p>\n\n\n\n<p>House down payment requirements can vary between lenders. How much you can afford will depend on your income, down payment, and credit history. <\/p>\n\n\n\n<p>For some lenders, a <a href=\"https:\/\/financer.com\/wiki\/credit-score\/\" data-type=\"wiki\" data-id=\"715\">credit score<\/a> of <strong>under 580<\/strong> will require a minimum 10% deposit. Find out how to improve your credit score here.<\/p>\n\n\n\n<ul class=\"is-style-default\"><li><a href=\"https:\/\/financer.com\/how-to-improve-your-credit-score\/\"><strong>Need to improve your credit score?<\/strong><\/a><\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"Benefits_of_a_Larger_Down_Payment\">Benefits of a Larger Down Payment<\/h2>\n\n\n\n<p>The good news is you don&#8217;t have to save a large sum for a home down payment. However, there are benefits to saving a larger deposit for your down payment.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"Private_Mortgage_Insurance\">Private Mortgage Insurance<\/h3>\n\n\n\n<p>If you have a conventional loan, you might be forced to pay for private mortgage insurance (PMI), which is commonly known as PMI. <\/p>\n\n\n\n<p>Similar to other types of mortgage insurance, if you cease making loan payments, PMI insurance will protect the lender rather than you.<\/p>\n\n\n\n<p>Private insurance companies supply PMI, which is negotiated by the lender. When you have a traditional loan and put down less than 20% of the home&#8217;s price, PMI is typically necessary &#8211; the same when you&#8217;re refinancing with a conventional loan and your equity is less than 20% of the value of your property.<\/p>\n\n\n<div class=\"fn_block block_fn_msg_box key-takeaways\"><div class=\"fn_block__icon\"><\/div><p>Having a house down payment of <strong>more than\u00a020%\u00a0<\/strong>means you can avoid paying private mortgage insurance (PMI).<\/p><\/div>\n\n\n<p>Like other types of mortgage insurance, PMI insurance could help you to get a loan that you might not otherwise be able to qualify for. <\/p>\n\n\n\n<p><strong>However, it can make your loan more expensive<\/strong>. And it only protects the lender, not you if you experience issues with your mortgage.<\/p>\n\n\n\n<p>Sometimes lenders will provide traditional loans with lower down payments and no PMI. These loans typically have higher interest rates. <\/p>\n\n\n\n<p>Depending on a variety of variables, such as how long you want to live in the house, paying a higher interest rate may be more or less expensive than PMI. <\/p>\n\n\n\n<p>If you&#8217;re unsure about how paying PMI or higher <a href=\"https:\/\/financer.com\/wiki\/effective-interest-rate\/\">interest rates<\/a> can affect your taxes, you should see a tax advisor.<\/p>\n\n\n\n<p><em>For many people, PMI payments are a part of homeownership. <\/em><\/p>\n\n\n\n<p>Suppose you are struggling to save a 20% deposit. It could still be beneficial to get a home that you can afford as soon as possible, even if it means less of a down payment.<\/p>\n\n\n<div class=\"fn_block block_fn_msg_box boxed\"><div class=\"fn_block__icon\"><\/div><p><!-- wp:list {\"className\":\"is-style-default\"} --><\/p>\n<p>In the case of <a href=\"https:\/\/financer.com\/wiki\/conventional-mortgage-loans\/\" data-type=\"wiki\" data-id=\"4874\">conventional mortgages<\/a>, if your <strong>loan-to-value reaches 78%<\/strong> the mortgage insurance is required to drop off automatically. You can make a formal request for the mortgage insurance to be removed once your loan-to-value is 80% or less, but it remains up to your lender.<\/p>\n<p><!-- \/wp:list --><\/p><\/div>\n\n\n<p>For FHA loans, mortgage insurance could be required for a minimum number of years, regardless of your loan-to-value ratio before that timeline is met. <\/p>\n\n\n\n<p>PMI may even be a permanent feature, requiring you to refinance into another loan product to eliminate it.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"Mortgage_Interest_Rates\">Mortgage Interest Rates<\/h3>\n\n\n\n<p>Another\u00a0<strong>benefit\u00a0<\/strong>of a higher down payment is a lower mortgage interest rate. <\/p>\n\n\n\n<p>When the borrower has a higher cash investment in the property, the lender takes on less risk. With the improved risk profile for the lender, they are generally able to offer a <strong>better interest rate.<\/strong><\/p>\n\n\n\n<p>Having more <a href=\"https:\/\/financer.com\/loans\/home-equity-line-of-credit\/\">equity in your home<\/a> also allows you to have lower repayments and more quickly pay down your principal.  <\/p>\n\n\n\n<p>Over time you can borrow against your <a href=\"https:\/\/financer.com\/loans\/home-equity-line-of-credit\/\">home equity<\/a> for future investments such as a rental property. How much mortgage you can afford really depends on your long-term goals both financially and for the house.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"How_To_Get_a_Down_Payment_On_a_House\">How To Get a Down Payment On a House<\/h2>\n\n\n\n<p>How much you save for a down payment will be determined by how much you can afford. Saving is only one of the options for obtaining your down payment. <\/p>\n\n\n\n<p>There are other approved sources you may be able to use toward your home down payment and these include:<\/p>\n\n\n\n<ul class=\"is-style-default\"><li>Gifted funds from a family member or close relative.<\/li><li>Crowdsourcing platform funds &#8211; these must be documented.<\/li><li>Down payment assistance programs with varying repayment options.<\/li><li><a href=\"https:\/\/financer.com\/cryptocurrency-exchanges\/\" data-type=\"page\" data-id=\"16216\">Cryptocurrencies<\/a> &#8211; will generally need to be converted to US dollars.<\/li><li>Funds from foreign bank accounts &#8211; additional documentation and currency conversion may be required.<\/li><li>Joint accounts &#8211; will need a letter from other account holders granting access to the funds.<\/li><\/ul>\n\n\n\n<p>Determining how much you need for a down payment will depend on your personal goals and financial situation. It may make sense to buy a house as soon as you can, especially if you plan to live in it for the long run and are able to comfortably manage the ongoing payments and maintenance costs. <\/p>\n\n\n\n<p>Never borrow more for a home than you can afford to repay. Rather aim to get as much house as you can afford for the money you are comfortable spending.<\/p>\n","protected":false},"author":102,"featured_media":51654,"comment_status":"open","ping_status":"closed","template":"","meta":{"disable_branded_featured_image":false,"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","ep_exclude_from_search":false,"footnotes":""},"categories":[16],"_links":{"self":[{"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/wiki\/7617"}],"collection":[{"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/wiki"}],"about":[{"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/types\/wiki"}],"author":[{"embeddable":true,"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/users\/102"}],"replies":[{"embeddable":true,"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/comments?post=7617"}],"version-history":[{"count":50,"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/wiki\/7617\/revisions"}],"predecessor-version":[{"id":51655,"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/wiki\/7617\/revisions\/51655"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/media\/51654"}],"wp:attachment":[{"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/media?parent=7617"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/categories?post=7617"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}