How much money will I need for a down payment on a home?
EAGER first-time buyers will need savings to be able to buy a home. How much money you need for a down payment varies though, depending on the mortgage and house prices. We explain what you need to know. 1 Eager first-time buyers will need savings to be able to buy a home. A down payment is the cash you pay upfront to make a big purchase, such as a home or car, and it represents a percentage of the full purchase price. For example, a 10% down payment on a $300,000 home would be $30,000. When you apply for a mortgage to buy a home, the down payment is your contribution and represents your ownership stake in the property. The lender then provides the rest of the cash to buy the apartment or house. GETTING on the property ladder can feel like a daunting task but there are schemes available to help first-time buyers. Below we round up top options: Federal Housing Administration (FHA) Loans: The Federal Housing Administration (FHA) manages the FHA loans program. This may be a good mortgage choice if youre a first-time buyer because the requirements are not as strict as for other loans. Homeownership Vouchers: The scheme offers subsidies to use toward buying a home to low-income Americans who are first-time buyers. For more information, contact your local Public Housing Agency (PHA). Good Neighbor Next Door: Certain teachers, emergency workers and law enforcement officers can take advantage of the Good Neighbor Next Door program. It offers 50% off select properties. In return, you must commit to live in the property for at least 36 months. State programs: Plenty of states housing authorities offer help in the form of combined closing cost and down payment assistance programs with favourable mortgages rates. To find out what's available to first-time buyers in your area, get in touch with your state directly. Some lenders and experts recommend homebuyers to have a down payment of at least 20%, but it's possible to put down just 3%. With the average house price sitting at $287,148 in May 2021, 20% of this means you'd have to have at least $57,430 in savings. In comparison, a 3% down payment on the same home would be $8,614. However, if you're able to put down 20%, it could be worth it because you'll otherwise have to pay private mortgage insurance (PMI). PMI typically costs between 0.22% and 2.25% of your loan balance each year, according to the bank Chase. It means the average home could cost up to $5,561 extra each year in PMI. Before you buy, keep in mind that lower down payments also often come with higher interest rates on your mortgage. Options for small down payments  Federal Housing Administration (FHA) loan  A Federal Housing Administration loan is a mortgage that is insured by the government agency and issued by an FHA-approved lender. Because the FHA will pay a claim to your lender if you default on the mortgage, the lender bears less risk than usual. However, you agree to take on some risk too by paying two mortgage insurance premiums (MIP). The upfront premium is set at 1.75% of the loan amount, while the rate you pay over the full mortgage term depends on how much you borrow. In 2021, you can borrow up to 96.5% of the value of the home with an FHA loan, meaning you'll need to make a down payment of just 3.5%. To be eligible, you need to have a credit score of at least 580. If your credit score is below 500 and 579, you can still get an FHA loan as long as you can make a 10% down payment. Based on the average home price in May, this means you'd have to have either $10,050 or $28,714 for the down payment. Conventional mortgages  Lenders that follow federal guidelines can accept down payments of just 3%, but those loans will require you to also pay for PMI. The cost of PMI is based on the size of your down payment and your credit score. Bank of America, for example, offers homebuyers up to $548,250 loans if they can put down 3% and meet its criteria. Options for no down payments  There are also alternatives that don't require any down payment at all, whether you don't have the cash or simply don't want to put it down. These include Veteran Affairs (VA) and USDA loans, which are both backed by the federal government. Veteran Affairs loans  Veteran Affairs (VA) loans are for current and veteran military service members and eligible surviving spouses. These loans often don't require a down payment as long as the sales price isn't higher than the value an expert has estimated it at. To get it, you'll need to apply for a VA-backed home loan Certificate of Eligibility. You'll then show this to your lender when you apply for a mortgage. Just keep in mind you may have to pay a VA funding fee, which is a one-off charge that helps to lower the cost of the loan for US taxpayers. USDA loans  USDA loans are for rural and suburban homebuyers who typically can't get a traditional mortgage. The loans are backed by the Department of Agriculture's rural development program and have no down payment requirement. There are income limits to qualify for a home loan guarantee, which vary depending on where you live and on household size. To find the limit for the county where you live, check the USDA website. To apply for a USDA-backed loan, you should talk to a participating lender. Suze Orman recently explained how homebuyers with little in savings can put down just 10% when purchasing a property. She's also urged homeowners to avoid a common yet "huge mistake" when refinancing their mortgage. We explain all you need to know about FHA loans and how to apply.